Form 8-K - Current report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): October 4, 2024

AMERICAN COASTAL INSURANCE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

001-35761

75-3241967

(State or other jurisdiction of incorporation)

(Commission File Number)

(IRS Employer Identification No.)

570 Carillon Parkway, Suite 100

33716

Saint Petersburg,

(Address of principal executive offices)

(Zip Code)

(727)

633-0851

(Registrant's telephone number, including area code)

800 2nd Avenue S., St. Petersburg, Florida, 33701

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, $0.0001 par value per share	ACIC	Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 8.01 Other Events.

American Coastal Insurance Corporation (the "Company") is filing this Current Report on Form 8-K to recast its consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 15, 2024 (the "2023 Form 10-K") to reflect the Company's reportable discontinued operations and resulting segment changes. As previously announced, on May 9, 2024, the Company entered into a Stock Purchase Agreement (the "Sale Agreement") with Forza Insurance Holdings, LLC ("Forza") in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of Interboro Insurance Company (“IIC”).

Therefore, the Company determined that the operations of IIC should be reported as discontinued operations in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 205, Presentation of Financial Statements. In addition, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting, the Company has determined following the signed agreement to sell IIC the Company now operates under one operating segment. The Company has recast its previously filed consolidated financial statements to reflect these changes. These recast consolidated financial statements also include our independent registered public accounting firm’s opinion on internal control over financial reporting.

The recast historical consolidated financial statements, as well as the other items from the 2023 Form 10-K listed below containing recast financial information, are filed as Exhibit 99.1 to this Current Report and are incorporated by reference into this Item 8.01:

a.Part I, Item 1. Business;

b.Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations;

c.Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk;

d.Part II, Item 8. Financial Statements and Supplementary Data; and

e.Part II, Item 9A. Controls and Procedures

This exhibit does not modify or update disclosures as presented in the 2023 Form 10-K to reflect events or occurrences after the date of the filing of the 2023 Form 10-K, except for matters relating specifically to the recasting of the presentation as described above. This Form 8-K, including Exhibit 99.1, should be read in conjunction with the 2023 Form 10-K and the Company's filings made subsequent to the filing of the 2023 Form 10-K.

Item 9.01. Financial Statements and Exhibits




Exhibit No.						Description
23.1						Consent of Deloitte & Touche, LLP.

99.1						Revised Items of American Coastal Insurance Corporation Form 10-K for fiscal year ended December 31, 2023.

104						Cover Page Interactive Data File (embedded within the Inline XBRL document)
101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema

101.CAL						XBRL Taxonomy Extension Calculation Linkbase

101.DEF						XBRL Taxonomy Extension Definition Linkbase

101.LAB						XBRL Taxonomy Extension Label Linkbase

101.PRE						XBRL Taxonomy Extension Presentation Linkbase

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.


		AMERICAN COASTAL INSURANCE CORPORATION
October 4, 2024	By:	/s/ B. Bradford Martz
		B. Bradford Martz, President

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statement Nos. 333-191473 and 333-238078 on Form S-8 and Registration Statement No. 333-256825 on Form S-3 of our reports dated October 4, 2024, relating to the consolidated financial statements of American Coastal Insurance Corporation and the effectiveness of American Coastal Insurance Corporation's internal control over financial reporting, appearing in this Current Report on Form 8-K for the year ended December 31, 2023.



/s/ DELOITTE & TOUCHE LLP

Tampa, Florida
October 4, 2024

EXHIBIT 99.1

Introductory note

American Coastal Insurance Corporation (“ACIC” or the “Company”) has recast certain information contained in its Annual Report on Form 10-K for the year ended December 31, 2023, originally filed with the Securities and Exchange Commission (the "SEC") on March 15, 2024 (“2023 Form 10-K”), as described in Item 8.01 of this Current Report on Form 8-K, to reflect the Company's discontinued operations and resulting segment changes. As previously announced, on May 9, 2024, the Company entered into a Stock Purchase Agreement (the "Sale Agreement") with Forza Insurance Holdings, LLC ("Forza") in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of Interboro Insurance Company (“IIC”). Therefore, the Company determined that the operations of IIC should be reported as discontinued operations in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 205, Presentation of Financial Statements. In addition, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting, the Company has determined following the signed agreement to sell IIC the Company now operates under one operating segment. The Company has recast its previously filed consolidated financial statements to reflect these changes. These recast consolidated financial statements also include our independent registered public accounting firm’s opinion on internal control over financial reporting.

The sections of the 2023 Form 10-K that have been recast in their entirety are as follows:

a.Part I, Item 1. Business;

b.Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations;

c.Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk;

d.Part II, Item 8. Financial Statements and Supplementary Data; and

e.Part II, Item 9A. Controls and Procedures

Those sections of the 2023 Form 10-K which have not been recast as set forth herein are not materially impacted by the Company’s reportable discontinued operations or segment change described in this Current Report on Form 8-K. Accordingly, the recast information set forth in this Exhibit 99.1 to the Current Report on Form 8-K (the “Recast 2023 Form 10-K”) should be read in conjunction with the 2023 Form 10-K.

This Recast 2023 Form 10-K does not reflect events occurring after the March 15, 2024 filing date of the 2023 Form 10-K and does not modify or update the disclosures therein except to reflect the changes in the Company’s reportable discontinued operations and segment reporting. For developments since the filing of the fiscal year 2023 Form 10-K, refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, and its Current Reports on Form 8-K filed subsequent to the 2023 Form 10-K.

AMERICAN COASTAL INSURANCE CORPORATION


Forward-Looking Statements		3
Part I.
	Item 1. Business	5






Part II.

	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk	35
	Item 8. Financial Statements and Supplementary Data	47
	Auditor’s Report (PCAOB ID 34)	38
	Consolidated Balance Sheets	40
	Consolidated Statements of Comprehensive Income (Loss)	41
	Consolidated Statements of Stockholders’ Equity (Deficit)	42
	Consolidated Statements of Cash Flows	43
	Notes to Consolidated Financial Statements	44

	Item 9A. Controls and Procedures	90

Throughout this Recast 2023 Form 10-K, we present amounts in all tables in thousands, except for share amounts, per share amounts, policy and claim counts or where more specific language or context indicates a different presentation. In the narrative sections of this Recast 2023 Form 10-K, we show full values rounded to the nearest thousand.

AMERICAN COASTAL INSURANCE CORPORATION

FORWARD-LOOKING STATEMENTS

This Recast 2023 Form 10-K or documents incorporated by reference contain or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about anticipated growth in revenues, gross written premium, earnings per share, estimated unpaid losses on insurance policies, investment returns, and diversification and expectations about our liquidity, our ability to meet our investment objectives and our ability to manage and mitigate market risk with respect to our investments. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “endeavor,” “project,” “believe,” “plan,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and management’s beliefs and assumptions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:

•our exposure to catastrophic events and severe weather conditions;

•the regulatory, economic and weather conditions present in Florida and New York, the states in which we are most concentrated;

•our ability to cultivate and maintain agent relationships, particularly our relationship with AmRisc, LLC (AmRisc);

•the possibility that actual claims incurred may exceed our loss reserves for claims;

•assessments charged by various governmental agencies;

•our ability to implement and maintain adequate internal controls over financial reporting, including our ability to remediate any existing material weakness in our internal controls over financial reporting and the timing of any such remediation, as well as to reestablish effective internal controls over financial reporting and disclosure controls and procedures;

•our ability to maintain information technology and data security systems, and to outsource relationships;

•our reliance on key vendor relationships, and the ability of our vendors to protect the personally identifiable information of our customers, claimants or employees;

•our ability to attract and retain the services of senior management;

•risks and uncertainties relating to our mergers, dispositions and other strategic transactions;

•risks associated with investments in which we share ownership or management with third parties;

•our ability to generate sufficient cash to service all of our indebtedness and comply with covenants and other requirements related to our indebtedness;

•our ability to maintain our market share;

•changes in the regulatory environment present in the states in which we operate;

•the impact of new federal or state regulations that affect the insurance industry;

•the cost, viability and availability of reinsurance;

•our ability to collect from our reinsurers on our reinsurance claims;

•dependence on investment income and the composition of our investment portfolio and related market risks;

•the possibility of the pricing and terms for our products to decline due to the historically cyclical nature of the property and casualty insurance and reinsurance industry;

•the outcome of litigation pending against us, including the terms of any settlements;

•downgrades in our financial strength or stability ratings;

•the impact of future transactions of substantial amounts of our common stock by us or our significant stockholders on our stock price;

•our ability to meet the standards for continued listing on Nasdaq;

•our ability to pay dividends in the future, which may be constrained by our holding company structure;

•the ability of our subsidiaries to pay dividends in the future, which may affect our liquidity and our ability to meet our

obligations;

•the ability of R. Daniel Peed and his affiliates to exert significant control over us due to substantial ownership of our common stock, subject to certain restrictive covenants that may restrict our ability to pursue certain opportunities;

•the impact of transactions by R. Daniel Peed and his affiliates on the price of our common stock;

•provisions in our charter documents that may make it harder for others to obtain control of us; and

•other risks and uncertainties described in this report, including under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K.

Other risks, uncertainties and factors, including those discussed in “Risk Factors” in the 2023 Form 10-K, could cause our actual results to differ materially from those projected in any forward-looking statements we make. We caution you to not place reliance on these forward-looking statements, which are valid only as of the date they were made. Except as may be required by

AMERICAN COASTAL INSURANCE CORPORATION

applicable law, we undertake no obligation to update or revise any forward-looking statements to reflect new information, the occurrence of unanticipated events or otherwise.

AMERICAN COASTAL INSURANCE CORPORATION

PART I

Item 1. Business

INTRODUCTION

Company Overview

American Coastal Insurance Corporation (referred to in this Form 10-K as we, our, us, the Company or ACIC) is a holding company primarily engaged in the commercial and personal property and casualty insurance business with investments in the United States. On July 10, 2023, we changed our corporate name from United Insurance Holdings Corp. to American Coastal Insurance Corporation. We conduct our business principally through our two wholly-owned insurance subsidiaries: American Coastal Insurance Company (AmCoastal); and Interboro Insurance Company (IIC). Collectively, we refer to the holding company and all our subsidiaries, including non-insurance subsidiaries, as “American Coastal Insurance Corporation,” which is the preferred brand identification for our Company.

Our Company’s primary source of revenue is generated from writing insurance in Florida and New York. Our target market in such areas consists of states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies. We believe an opportunity exists for ACIC to write profitable business in such areas. During 2022, we also wrote commercial residential insurance in South Carolina and Texas, however, effective May 1, 2022, we no longer write in these states. In addition, during 2022 we wrote personal residential business in six other states, however on February 27, 2023, our former insurance subsidiary, United Property & Casualty Insurance Company (UPC) was placed into receivership with the Florida Department of Financial Services (the "DFS"), which divested our ownership of UPC. The events leading to receivership and results of this subsidiary for periods prior to receivership, now included within discontinued operations, can be seen in Note 3 of the Notes to Consolidated Financial Statements below.

We have historically grown our business through strong organic growth, complemented by strategic acquisitions and partnerships, including our acquisitions of AmCo Holding Company, LLC (AmCo) and its subsidiaries, including AmCoastal, in April 2017, IIC in April 2016, and Family Security Holdings, LLC (FSH), including its subsidiary Family Security Insurance Company, Inc. (FSIC), in February 2015, and our strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Tokio Marine), which formed Journey Insurance Company (JIC) in August 2018. Effective June 1, 2022, we merged JIC into AmCoastal, with AmCoastal being the surviving entity. Effective May 31, 2022, we merged FSIC into our former subsidiary, UPC, with UPC being the surviving entity.

On May 9, 2024, the Company entered into a Stock Purchase Agreement (the "Sale Agreement") with Forza Insurance

Holdings, LLC ("Forza") in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of IIC. The

aggregate purchase price for the shares will be equal to IIC's GAAP shareholder’s equity on the closing date. Closing is subject

to customary closing conditions, including New York Department of Financial Services ("NYDFS") approval of Forza's

application for acquisition of control, and NYDFS approval of a new rate and form filing. Given IIC is our last remaining personal lines entity and represents the final step in our strategic shift to becoming a specialty commercial underwriter, IIC results of operations and assets and liabilities are captured within discontinued operations and can be seen in Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements above.

Financial strength or stability ratings are important to insurance companies in establishing their competitive position and may impact an insurance company’s ability to write policies. We are rated by Demotech and Kroll Bond Rating Agency (Kroll). Demotech maintains a letter-scale financial stability rating system ranging from A’’ (A double prime) to L (licensed by insurance regulatory authorities). Kroll maintains a letter-scale financial strength rating system for insurance companies ranging from AAA (extremely strong operations and no risk) to R (operating under regulatory supervision). The financial strength or stability ratings of our insurance company subsidiaries as of December 31, 2023 are listed below. With these ratings, we expect our property insurance policies will be acceptable to the secondary mortgage marketplace and mortgage lenders.

Subsidiary

Demotech Rating

Kroll Rating

AmCoastal

A-

IIC

A-

ACIC

BB+

AMERICAN COASTAL INSURANCE CORPORATION

Our Strategy

Our vision is to be a top-quartile underwriter of catastrophe exposed property insurance. Our plan is to focus primarily on low-rise commercial property insurance in Florida, through our exclusive managing general agency agreement and long-term partnership with AmRisc, LLC. The Company’s continuous portfolio optimization process strives to balance our risk appetite and underwriting profit opportunities with our available capital and reinsurance capacity to achieve consistent and sustainable underwriting profitability for the Company and its reinsurers over time.

We desire to have the right combination of price, underwriting rules, deductibles and coverages to earn a return on capital that exceeds our cost of capital throughout the insurance market cycle. The Company also seeks to have risks maintain an appropriate insurance to value through annual re-underwriting and inspection of each property to ensure it meets or exceeds our underwriting guidelines with verified data quality and integrity regarding the key risk characteristics of our covered properties.

With UPC in receivership, the Company’s personal lines business is limited to IIC in New York and activities supporting the run-off and liquidation of UPC. As a result of the definitive agreements to sell IIC and our desire to focus on commercial lines, we expect ACIC to be our only operating insurance subsidiary following the sale of IIC.

Our commercial lines portfolio is concentrated in Florida where an ongoing threat of natural catastrophes exposes the Company to risk and volatility.

PRODUCTS AND DISTRIBUTION

In July 2020, we implemented a strategy to de-risk the Company by reducing premiums and exposure from our personal lines portfolio that was offset with growth in our commercial lines portfolio. Upon closing of the sale of IIC, we will have completed our exit of the personal lines market. The graphs below show our product mix distribution based on gross written premium, including our premiums attributable to IIC, but excluding UPC which is no longer a subsidiary of the Company.

AMERICAN COASTAL INSURANCE CORPORATION

Personal Residential Products

Policies we issue under our homeowners’ program provide structure, content and liability coverage for standard single-family homeowners, renters and condominium unit owners through our subsidiary IIC. Personal residential products are offered in New York. We include coverage to policyholders for loss or damage to dwellings, detached structures or equipment caused by covered causes of loss such as fire, wind, hail, water, theft and vandalism.

In 2023, personal residential property policies (by which we mean both standard homeowners’, dwelling fire, renters and condo owners’ policies) produced written premium of $34,334,000 and accounted for 5.1% of our total gross written premium, excluding UPC. All of the personal residential gross written premium was written in New York.

Loss and loss adjustment expenses related to our personal residential products tend to be higher during periods of severe or inclement weather, which varies from state to state.

Following the sale of IIC, we will complete our exit from personal lines.

Commercial Residential Products

We primarily provide commercial multi-peril property insurance for residential condominium associations and apartments in Florida. In 2020, we began writing commercial policies in Texas and South Carolina. Effective May 31, 2022, we no longer write commercial policies in Texas and South Carolina. We include coverage to policyholders for loss or damage to buildings, inventory or equipment caused by covered causes of loss such as fire, wind, hail, water, theft and vandalism.

In 2023, commercial policies produced written premium of $635,709,000 and accounted for 94.9% of our total gross written premium, excluding UPC.

Not-At-Risk Offerings

On our equipment breakdown, identity theft, and cyber security policies we earn a commission while retaining no risk of loss, since all such risk is ceded to other private companies (other risks). Previously, we offered flood policies that were ceded to the federal government via the National Flood Insurance Program (NFIP). However, on June 9, 2022, we entered into a renewal rights agreement with Wright National Flood Insurance Company to sell our entire NFIP Write Your Own flood insurance business and are no longer offering flood policies.

Underwriting

We price our products at levels that we project will generate an acceptable underwriting profit. We aim to accurately underwrite the risk and profitability of each potential policy. The Company uses pricing algorithms, judgement-based rating and consent to rate methodologies that consider historical attritional loss costs for the rating territory in which the risk resides, as well as modeled expected losses for catastrophes and projected reinsurance costs based on the specific geographic and structural characteristics of the property. We seek to optimize our portfolio by managing our probable maximum loss, total insured value

AMERICAN COASTAL INSURANCE CORPORATION

and average annual loss. As part of this optimization process, we use the output from third-party modeling software to analyze our risk exposures, including wind exposures, by zip code or street address.

We measure our underwriting profitability by the combined ratio, which is a sum of the ratios of losses, loss adjustment expenses, and underwriting expenses to either gross or net earned premiums. A combined ratio under 100% indicates an underwriting profit. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of this report for further details on our combined ratio.

Distribution Channels

Our commercial lines policies are marketed and distributed to condominium associations by AmRisc, LLC through a network of independent agencies managed by AmRisc, LLC that specialize in commercial residential insurance. AmRisc, LLC is an unaffiliated third-party and represents 100% of our commercial lines revenue based on our exclusive agreement in Florida.

As of December 31, 2023, we marketed and distributed our personal lines policies to consumers through approximately 400 independent agencies.

The Company focused on the independent agency distribution channel since its inception, and we believe independent agents and agencies build relationships in their communities that can lead to profitable business and policyholder satisfaction. We believe we have built significant credibility and loyalty with the independent agent communities in the states in which we operate through (i) our extensive training for full-service insurance agencies that distribute our products and (ii) periodic business reviews using established benchmarks and goals for premium volume and profitability.

Typically, a full-service agency is small to medium in size and represents several insurance companies for both personal and commercial product lines. We depend on our independent agents to produce new business for us. We compensate our independent agents primarily with fixed-rate commissions that we believe are consistent with those generally prevailing in the market.

GEOGRAPHIC MARKETS

The table below shows the geographic distribution of our policies in-force as of December 31, 2023, 2022 and 2021, including our policies in-force attributable to IIC, but excluding UPC which is no longer a subsidiary of the Company. The graphs below exclude states with policies that are less than 0.2% of our total policies in-force.


Policies In-Force By State (1)	2023	2022	2021
New York	18,640	35,868	43,529
Florida	4,208	5,348	5,909
Texas	—	26	88
South Carolina	—	—	28
Total	22,848	41,242	49,554

(1) We are no longer writing in Texas or South Carolina as of May 31, 2022.

AMERICAN COASTAL INSURANCE CORPORATION

The table below shows the geographic distribution of our total insured value (TIV) of all polices in-force as of December 31, 2023, 2022 and 2021, including TIV attributable to IIC, but excluding UPC which is no longer a subsidiary of the Company.


TIV By State(1)	2023		2022		2021
Florida	$	56,340,145	$	68,961,070	$	72,638,543
New York	13,255,735		26,697,590		32,012,956
Texas	—		615,670		372,633
South Carolina	—		—		1,650,412
Total	$	69,595,880	$	96,274,330	$	106,674,544

(1) We are no longer writing in Texas or South Carolina as of May 31, 2022.

AMERICAN COASTAL INSURANCE CORPORATION

COMPETITION

The property and casualty insurance market in the United States is highly competitive and rapidly changing. Our primary competitors range from large national property and casualty insurance companies that write most classes of business using traditional products and pricing to small and mid-size regional insurance companies that provide specialty coverages.

We compete primarily on the basis of policy features, the strength of our distribution network and the quality of our services to our agents and policyholders. Our track record writing homeowners’ insurance in catastrophe-exposed areas has enabled us to develop sophisticated pricing techniques that endeavor to accurately reflect the risk of loss while allowing us to be competitive in our target markets. This pricing segmentation approach allows us to offer products in areas that have a high demand for property insurance yet are under-served by the national carriers. However, we face the risk that policyholders may be able to obtain more favorable terms from competitors rather than renewing coverage with us.

Our ability to compete is dependent on a number of factors. One factor is the financial strength or stability ratings assigned to our insurance subsidiaries by independent rating agencies. A downgrade in these ratings could negatively impact our position in the market. Another, is that we must attract and retain key employees and highly skilled people in order to be successful in the market. There is intense competition in our industry which could lead to higher than expected employee turnover or difficulty attracting new employees. Finally, technological advancements and innovation in the insurance industry provide opportunities for a competitive advantage. Advancements and innovation are being used in all aspects of the industry including digital-based distribution methods, underwriting and claims handling. We continue to leverage the technology that we have and have made substantial investments into new technology in an effort to gain an advantage over our competitors.

REGULATION

We are subject to extensive regulation in the jurisdictions in which our insurance company subsidiaries are domiciled and licensed to transact business, primarily at the state level. AmCoastal is domiciled in Florida and IIC is domiciled in New York. In general, these regulations are designed to protect the interests of insurance policyholders.

Such regulations have a substantial effect on certain areas of our business, including:

•insurer solvency,

•reserve adequacy,

•insurance company licensing and examination,

•agent and adjuster licensing,

•rate setting, underwriting rules and coverage forms,

•investments,

•assessments or other surcharges for guaranty funds,

•transactions with affiliates,

•the payment of dividends,

•reinsurance,

•protection of personally identifiable information,

•risk solvency assessment and enterprise risk management,

•cybersecurity,

•statutory accounting methods, and

AMERICAN COASTAL INSURANCE CORPORATION

•numerous requirements relating to other areas of insurance operations, including policy forms, underwriting standards and claims practices.

Our insurance subsidiaries provide audited statutory financial statements to the various insurance regulatory authorities. With regard to periodic examinations of an insurance company’s affairs, insurance regulatory authorities, in general, defer to the insurance regulatory authority in the state in which an insurer is domiciled; however, insurance regulatory authorities from any state in which we operate may conduct examinations at their discretion.

In 2021, the Florida Office of Insurance Regulation (FLOIR) began a statutory examination of JIC for the year ended December 31, 2020. This examination concluded in 2022, with no significant findings. In 2023, the FLOIR notified the Company of a statutory financial examination of AmCoastal as of December 31, 2023, to commence in 2024.

For a discussion of statutory financial information and regulatory contingencies, see Note 15 to our Notes to Consolidated Financial Statements in Part II, Item 8 of this report.

Risk-Based Capital Requirements

To enhance the regulation of insurer solvency, the NAIC has published risk-based capital (RBC) guidelines for insurance companies designed to assess capital adequacy and to raise the level of protection statutory surplus provides for policyholders. The guidelines measure three major areas of risk facing property and casualty insurers: (i) underwriting risks, which encompass the risk of adverse loss developments and inadequate pricing; (ii) declines in asset values arising from credit risk; and (iii) other business risks. Most states, including Florida and New York, have enacted the NAIC guidelines as statutory requirements, and insurers having less statutory surplus than required will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy.

The level of required risk-based capital is calculated and reported annually. The table below outlines each of our subsidiary’s RBC ratios, all of which were in excess of minimum requirements, as of December 31, 2023.


Subsidiary	RBC Ratio
ACIC	979	%
IIC	477	%

Underwriting and Marketing Restrictions

During the past several years, various regulatory and legislative bodies have adopted or proposed new laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing. These regulations: (i) created “market assistance plans” under which insurers are induced to provide certain coverage; (ii) restrict the ability of insurers to reject insurance coverage applications, to rescind or otherwise cancel certain policies in mid-term, and to terminate agents; (iii) restrict certain policy non-renewals and require advance notice on certain policy non-renewals; and (iv) limit rate increases or decrease rates permitted to be charged.

Most states also have insurance laws requiring that rate schedules and other information be filed with the insurance regulatory authority, either directly or through a rating organization with which the insurer is affiliated. The insurance regulatory authority may disapprove a rate filing if it finds that the rates are inadequate, excessive or unfairly discriminatory.

Most states require licensure or insurance regulatory authority approval prior to the marketing of new insurance products. Typically, licensure review is comprehensive and includes a review of a company’s business plan, solvency, reinsurance, rates, forms and other financial and non-financial aspects of a company, such as the character of its officers and directors. The insurance regulatory authorities may prohibit entry into a new market by not granting a license or by withholding approval.

Limitations on Dividends by Insurance Subsidiaries

AMERICAN COASTAL INSURANCE CORPORATION

As a holding company with no significant business operations of our own, we rely on payments from our insurance subsidiaries as one of the principal sources of cash to pay dividends and meet our obligations. Our insurance affiliates are regulated as property and casualty insurance companies and their ability to pay dividends is restricted by Florida and New York law.

The state laws of Florida and New York permit an insurer to pay dividends or make distributions out of that part of statutory surplus derived from net operating profit and net realized capital gains or adjusted net investment income. The state laws further provide calculations to determine the amount of dividends or distributions that can be made without the prior approval of the insurance regulatory authorities and the amount of dividends or distributions that would require prior approval of the insurance regulatory authorities in those states. Statutory risk-based capital requirements may further restrict our insurance subsidiaries’ ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause statutory surplus to fall below minimum risk-based capital requirements.

In addition, in connection with the filed plan of withdrawal in New York for our former insurance subsidiary, UPC, our subsidiary, IIC, has agreed not to pay ordinary dividends until January 1, 2025, without the prior approval of the New York Department of Financial Services.

For additional information regarding those restrictions, see Part II, Item 5 and Part I, Item 1A of this report.

Insurance Holding Company Regulation

As a holding company of insurance subsidiaries, we are subject to laws governing insurance holding companies in Florida and New York. These laws, among other things: (i) require us to file periodic information with the insurance regulatory authority, including information concerning our capital structure, ownership, financial condition and general business operations; (ii) regulate certain transactions between our affiliates and us, including the amount of dividends and other distributions and the terms of surplus notes: and (iii) restrict the ability of any one person to acquire certain levels of our voting securities without prior regulatory approval. Any purchaser of 5% or more of the outstanding shares of our common stock could be presumed to have acquired control of us unless the insurance regulatory authority, upon application, determines otherwise.

Insurance holding company regulations also govern the amount any affiliate of the holding company may charge our insurance affiliates for services (i.e., management fees and commissions). The Company allocates a portion of relevant expenses to AmCoastal for statutory accounting purposes at cost.

AmRisc, a managing general underwriter, handles the underwriting, claims processing and premium collection for our AmCoastal commercial business written in Florida. In return, AmRisc is reimbursed through monthly management fees.

The Company does not utilize a managing general agent structure in New York. Instead, ACIC allocates a portion of relevant expenses to IIC for statutory accounting purposes at cost.

CORPORATE RESPONSIBILITY AND SUSTAINABILITY

As a company with more than 20 years of history and experience, we strive to create and maintain a culture within our business where people are empowered to address risks as they emerge, and where we expect all associates to hold themselves and their teammates accountable for personal integrity and professionalism. To demonstrate this culture our leaders must lead by example and clear standards of behavior should be well understood by the entire company. We maintain five core values; collaboration, communication, loyalty, resiliency, and integrity, to accomplish this goal.

In addition to our cultural goals, we are committed to conducting business in a manner that supports environmental, social, and governance (ESG) matters. ACIC believes that an effective ESG strategy leads to improved decision making, associate engagement, and financial results over time.

To show our commitment to conducting business that supports ESG matters, in the second quarter of 2021 we published our Sustainability & Responsibility report, which outlines our ESG practices and goals. Highlights from the report can be seen below, and the full report is available on our company website under Environmental, Social and Governance.

Environmental Matters

AMERICAN COASTAL INSURANCE CORPORATION

As a data driven organization some of the facts surrounding climate change have our attention. Several factors, including the rise in carbon dioxide concentration levels in the atmosphere, higher global mean air and water temperatures, and sea and Arctic ice levels have been identified as potential culprits of the higher frequency and severity of catastrophe losses we have incurred over the past five years.

There is a growing consensus today that the frequency and severity of catastrophic events or severe weather conditions is increasing as a result of climate change. We recognize current trends and potential financial impact are not sustainable. As a result, we have taken the following steps to improve our environmental footprint and reduce our contribution to climate change:

•Reducing waste: paperless policy document delivery option and investment in paperless technologies;

•Eco-friendly disposal of retired equipment and electronics;

•Installed filtered water dispensers to promote re-usable bottles over disposables;

•Utilization of recycling bins throughout our offices;

•Implemented a remote work environment to both enhance productivity and curb the impact of daily commuting; and

•Use of energy efficient LED lighting, motion-activated lighting, and programmable thermostats to reduce energy use.

ACIC continuously monitors our environmental footprint and will continue to make steps to reduce this footprint where possible. We have committed to achieve net-zero carbon emissions in our operations and through our value chain by no later than 2030.

Social Responsibility

We understand that research shows diverse teams perform better, innovate more, and are more effective at managing risks. As a result, our organization has a vested interest in hiring associates and building teams that reflect the diversity of society and the communities that we seek to serve. Details of our accomplishments creating a diverse and inclusive workplace can be seen in Part I, Item 1., “Human Capital Management”.

In addition to our social responsibility as an employer within the community, ACIC also seeks to support our community through various initiatives intended to give back and promote goodwill. Over the past several years we have provided support to numerous non-for-profit organizations. Some of the causes we have provided support to include, but are not limited to, youth education, work force development, medical care and research, domestic violence shelters and prevention, and child-care services. We are committed to giving back and investing in the communities we serve.

Governance Matters

Our Board of Directors oversee and monitor our management in the interest and for the benefit of our stockholders. Our Board is currently comprised of nine directors, divided into two classes. Each class of directors is elected for a two-year term, in accordance with our Certificate of Incorporation. Eight of our Directors, or 88.9%, are considered to be independent.

Our Board of Directors has several committees, including an Audit Committee, a Compensation and Benefits Committee, a Nominating and Corporate Governance Committee, and an Investment Committee. All members of these committees qualify as independent directors under SEC and Nasdaq standards as well as under the independence standards specific to their committees. ACIC has also committed to adding at least two new Directors to our Board of Directors to improve overall diversity at the highest level of corporate governance.

HUMAN CAPITAL MANAGEMENT

Diversity and Employment Statistics

As of December 31, 2023, we had 71 employees, of which 17 worked in Claims, and eight worked in Sales and Underwriting, respectively. These employees have regular direct contact with our vendors, agencies, or customers. We are not party to any collective bargaining agreements and we have not experienced any work stoppages or strikes as a result of labor disputes.

The following table shows the diversity in our workforce population at December 31, 2023 and how this diversity has changed from December 31, 2022.

AMERICAN COASTAL INSURANCE CORPORATION

Gender (1)

Change from

December 31, 2022

Race (1)

Change from

December 31, 2022

Executive Officers

20.0%

0 points

40.0%

0 points

Management Team (2)

44.7%

5.7 points

14.9%

(11.9) points

All Other Employees

42.1%

(2.8) points

15.8%

(18.5) points

(1) Information regarding gender and race is based on information provided by employees.

(2) Our management team is comprised of employees in supervisory roles at the manager and director level or above.

We believe that inclusion and diversity starts at the top. In 2021, we appointed a female leader within our organization to serve as our General Counsel. In addition, in January 2024 we appointed a new female leader from outside of our organization to serve as our Chief Financial Officer. With two of the five members of our executive leadership team as of December 31, 2023 comprised of underrepresented groups, we believe this is strong evidence of our commitment to our ESG goals.

Oversight and Management

We recognize the diversity of our policyholders, team, and geographic markets, and believe in creating an inclusive environment that represents a variety of backgrounds. Working under these principles, our Human Resources Department is tasked with recruiting and hiring, onboarding, performance management, and managing employee-related matters.

We believe in transparency at all levels at ACIC. On a monthly basis, an all employee meeting is held where our Executive Officers recognize employees for their continued success, discuss new and ongoing company initiatives, and address any concerns our employees may have. In addition to this, the leaders in each department assist our Executive Officers in maintaining our culture and implementing our core values at all levels of the organization.

Total Rewards

We believe that our future success largely depends upon our ability to attract and retain highly skilled employees. To ensure we are successful in this, we provide our employees with the following:

•Competitive salaries and bonuses;

•Tuition reimbursement;

•Paid parental leave; and

•Robust employee benefit packages that include:

◦Health care;

◦Vision;

◦Dental;

◦Retirement program;

◦Paid time off; and

◦Employee assistance program that provides emotional support, legal services and financial services.

As a part of our retention efforts, we also invest in ongoing development for all employees, and attempt to fill vacant senior or leadership roles through internal promotion when possible. Voluntary attrition was 31.0% for the year ended December 31, 2023.

CORPORATE INFORMATION

American Coastal Insurance Corporation was incorporated in Delaware in 2007. On July 10, 2023, we changed our corporate name from United Insurance Holdings Corp. to American Coastal Insurance Corporation. Our principal executive offices are located at 570 Carillon Parkway, Suite 100, St. Petersburg, FL 33716 and our telephone number at that location is (727) 633-0851. We are listed on the Nasdaq stock exchange under ticker symbol “ACIC.”

Segments

AMERICAN COASTAL INSURANCE CORPORATION

We conduct our operations under one operating segment. Our chief operating decision maker is our President, who makes decisions to allocate resources and assesses performance.

For more information regarding our products and distribution, as well as the agreements in place with managing general agents and underwriters, please refer to Part 1 Item 1. “Products and Distribution” as well as Part 1 Item 1. “Insurance Holding Company Regulation”.

Available Information

We make available, free of charge through our website, www.amcoastal.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the Securities and Exchange Commission (SEC).

You may also access this information at the SEC’s website (www.sec.gov). This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

AMERICAN COASTAL INSURANCE CORPORATION

PART II

AMERICAN COASTAL INSURANCE CORPORATION

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing in Part II, Item 8 of this Recast 2023 Form 10-K. The following discussion provides an analysis of our results of operations and financial condition for 2023 as compared to 2022. Discussion regarding our results of operations and financial condition for 2022 as compared to 2021 is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 and the Revised Items of our Form 10-K for the year ended December 31, 2022, filed as Exhibit 99.1 to Form 8-K on September 19, 2023. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these forward-looking statements as a result of certain known and unknown risks and uncertainties. See “Forward-Looking Statements.”

The following discussion and analysis of our financial condition and results of operations highlights selected information and may not contain all of the information that is important to current or potential investors in our securities. This Recast 2023 Form 10-K updates certain sections of the 2023 Form 10-K and should be read alongside the 2023 Form 10-K in its entirety for a more detailed description of events, trends, uncertainties, risks, and critical accounting estimates affecting us. This Recast 2023 Form 10-K does not reflect events occurring after the March 15, 2024 filing date of the 2023 Form 10-K and does not modify or update the disclosures therein except to reflect the Company’s reportable discontinued operations. For developments since the filing of the fiscal year 2023 Form 10-K, refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, and its Current Reports on Form 8-K filed subsequent to the 2023 Form 10-K.

OVERVIEW

American Coastal Insurance Corporation is a holding company primarily engaged in commercial and personal property and casualty insurance business with investments in the United States. On July 10, 2023, we changed our corporate name from United Insurance Holdings Corp. to American Coastal Insurance Corporation. During the periods presented, we conducted our business principally through two wholly-owned insurance subsidiaries: American Coastal Insurance Company (AmCoastal) and Interboro Insurance Company (IIC). Collectively, we refer to the holding company and all our subsidiaries, including non-insurance subsidiaries, as “ACIC,” which is the preferred brand identification for our Company.

Our Company’s primary source of revenue is generated from writing insurance in Florida and New York. Our target market in such areas consists of states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies. We believe an opportunity exists for ACIC to write profitable business in such areas. During 2022, we also wrote commercial residential insurance in South Carolina and Texas, however, effective May 1, 2022, we no longer write in these states. In addition, during 2022 we wrote personal residential business in six other states, however on February 27, 2023, our former insurance subsidiary, United Property & Casualty Insurance Company (UPC) was placed into receivership with the Florida Department of Financial Services (the "DFS"), which divested our ownership of UPC. The events leading to receivership and results of this subsidiary, now included within discontinued operations, can be seen in Note 3 of the Notes to Consolidated Financial Statements below.

On May 9, 2024, the Company entered into a Stock Purchase Agreement (the "Sale Agreement") with Forza Insurance Holdings, LLC ("Forza") in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of IIC. The aggregate purchase price for the shares will be equal to IIC's GAAP shareholder’s equity on the closing date. Closing is subject to customary closing conditions, including New York Department of Financial Services ("NYDFS") approval of Forza's application for acquisition of control, and NYDFS approval of a new rate and form filing. Given IIC is our last remaining personal lines entity and represents the final step in our strategic shift to becoming a specialty commercial underwriter, IIC results of operations and assets and liabilities are captured within discontinued operations and can be seen in Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements below.

We have historically grown our business organically, complemented by strategic acquisitions and partnerships, including our acquisitions of AmCo Holding Company, LLC (AmCo) and its subsidiaries, including AmCoastal, in April 2017, IIC in April 2016, and Family Security Holdings, LLC (FSH), including its subsidiary Family Security Insurance Company, Inc. (FSIC), in February 2015, and our strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Tokio Marine), which formed Journey Insurance Company (JIC) in August 2018. Effective June 1, 2022, we merged JIC into AmCoastal, with AmCoastal being the surviving entity. Effective May 31, 2022, we merged FSIC into UPC, with UPC being the surviving entity.

AMERICAN COASTAL INSURANCE CORPORATION

As a result of underwriting actions implemented during 2023, as well as the receivership of our former subsidiary UPC by the DFS effective February 27, 2023, our policies in-force decreased by 91.0% from 254,275 policies in-force at December 31, 2022 to 22,848 policies in-force at December 31, 2023. These values include policies attributable to our discontinued operations.

Our business is subject to the impact of weather-related catastrophes on our loss and loss adjustment expenses (LAE). Over the last three years, the frequency of these catastrophes has increased. As a result, we have experienced increased catastrophe losses incurred during the prior three years. During the years ended December 31, 2023, 2022 and 2021, two, two, and four named storms, respectively, made landfall in our geographic footprint, resulting in retained pre-tax catastrophe losses of $729,000, $57,906,000, and $15,696,000, respectively, excluding our former subsidiary, UPC. In addition, during 2022 and 2021, we increased our loss and LAE reserves as a result of development trends from 2017’s Hurricane Irma, that indicated our ultimate gross loss estimate should be increased.

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of ACIC. In evaluating our results of operations, we use premiums written and earned, policies in-force and new and renewal policies by geographic concentration. We also consider the impact of catastrophe losses and prior year development on our loss ratios, expense ratios and combined ratios. In monitoring our investments, we use credit quality, investment income, cash flows, realized gains and losses, unrealized gains and losses, asset diversification and portfolio duration. To evaluate our financial condition, we consider our liquidity, financial strength, ratings, book value per share and return on equity.

AMERICAN COASTAL INSURANCE CORPORATION

Consolidated Net Income (Loss)


	Year Ended December 31,
	2023			2022			2021
REVENUE:
Gross premiums written	$	635,709		$	528,160		$	422,321
Change in gross unearned premiums	(31,026)			(53,972)			(11,922)
Gross premiums earned	604,683			474,188			410,399
Ceded premiums earned	(342,623)			(251,259)			(234,205)
Net premiums earned	262,060			222,929			176,194
Net investment income	8,300			6,043			4,694
Net realized losses	(6,789)			(6,512)			(33)
Net unrealized gains (losses) on equity securities	814			(1,968)			1,471

Other revenue	15			1,181			—
Total revenues	264,400			221,673			182,326
EXPENSES:
Losses and loss adjustment expenses	46,678			96,109			54,713
Policy acquisition costs	75,436			80,996			80,198
Operating expenses	8,714			12,432			14,863
General and administrative expenses	28,845			31,314			30,403
Interest expense	10,875			9,483			9,303
Total expenses	170,548			230,334			189,480
Income (loss) before other income	93,852			(8,661)			(7,154)
Other income	2,228			10,342			128
Income (loss) before income taxes	96,080			1,681			(7,026)
Provision (benefit) for income taxes	10,876			26,233			(5,937)
Income (loss) from continuing operations, net of tax	$	85,204		$	(24,552)		$	(1,089)
Income (loss) from discontinued operations, net of tax	224,707			(445,414)			(58,779)
Net income (loss)	$	309,911		$	(469,966)		$	(59,868)
Less: Net loss attributable to noncontrolling interests	—			(111)			(1,949)
Net income (loss) attributable to ACIC	$	309,911		$	(469,855)		$	(57,919)
Net income (loss) per diluted share	$	6.98		$	(10.91)		$	(1.35)
Book value per share	$	3.61		$	(4.21)		$	7.20
Return on equity based on GAAP net income (loss)	439.5		%	(307.4)		%	(16.9)		%
Loss ratio, net (1)	17.8		%	43.1		%	31.1		%
Expense ratio (2)(5)	43.1		%	56.0		%	71.2		%
Combined ratio (3)(5)	60.9		%	99.1		%	102.3		%
Effect of current year catastrophe losses on combined ratio	4.9		%	23.5		%	5.4		%
Effect of prior year development on combined ratio	(4.9)		%	(3.6)		%	(2.4)		%

Underlying combined ratio(4)(5)	60.9		%	79.2		%	99.3		%

(1) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.

(2) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate these components separately from our loss expenses.

(3) Combined ratio is the sum of the loss ratio, net and expense ratio. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.

(4) Underlying combined ratio, a measure that is not based on GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in “Definitions of Non-GAAP Measures”, below.

(5) Included in both the expense ratio and the combined ratio is amortization expense predominately associated with the AmCo acquisitions, which causes comparative differences among periods.

AMERICAN COASTAL INSURANCE CORPORATION

DEFINITIONS OF NON-GAAP MEASURES

We believe that investors’ understanding of ACIC’s performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Combined ratio excluding the effects of current year catastrophe losses and prior year reserve development (underlying combined ratio) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year development from the combined ratio. We believe that this ratio is useful to investors, and it is used by management to highlight the trends in our business that may be obscured by current year catastrophe losses and prior year development. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their frequency of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.

Net loss and LAE excluding the effects of current year catastrophe losses and prior year reserve development (underlying loss and LAE) is a non-GAAP measure that is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and LAE. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these two items can have a significant impact on our loss trends in a given period. We believe it is useful for investors to evaluate these components both separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net loss and LAE and does not reflect the overall profitability of our business.

AMERICAN COASTAL INSURANCE CORPORATION

RESULTS OF OPERATIONS

Consolidated Results

Net income attributable to ACIC for the year ended December 31, 2023 increased by $779,766,000 to $309,911,000, compared to a net loss of $469,855,000 for the year ended December 31, 2022. The increase in net income was primarily driven by the change in our results from discontinued operations, driven by the deconsolidation of our former subsidiary, UPC, which resulted in a gain of $238,440,000 as a result of the entity’s net liabilities at the time of disposal. UPC and supporting activities generated a net loss of $429,962,000 in 2022 as the result of Hurricane Ian, which exhausted UPC’s reinsurance coverage. Income from continuing operations increased $109,756,000, from a net loss of $24,552,000 to net income of $85,204,000. The drivers of this year-over-year increase are described below.

Revenues

Our gross written premiums increased by $107,549,000, or 20.4%, to $635,709,000 for the year ended December 31, 2023, from $528,160,000 for the year ended December 31, 2022, driven by increased written premiums in Florida as we continue to grow our commercial book of business. The breakdown of the year-over-year changes in both direct and assumed written premiums by state and gross written premium by line of business are shown in the table below.


Direct Written and Assumed Premium By State (1)	2023		2022		Change
Florida	$	635,602	$	503,815	$	131,787

Texas	(9)		3,887		(3,896)
South Carolina	—		15		(15)
Total direct written premium by state	$	635,593	$	507,717	$	127,876
Assumed premium (2)	116		20,443		(20,327)
Total gross written premium by state	$	635,709	$	528,160	$	107,549

Gross Written Premium by Line of Business
Commercial property	$	635,709	$	508,243	$	127,466
Personal property	—		19,917		(19,917)
Total gross written premium by line of business	$	635,709	$	528,160	$	107,549

(1) We are no longer writing in Texas or South Carolina as of May 31, 2022.

(2) Assumed premium written for 2023 primarily included commercial property business assumed from unaffiliated insurers. Assumed premium written for 2022 primarily included personal property business assumed by our former subsidiary, UPC.


New and Renewal Policies(1) By State(2)	2023	2022	Change

Florida	4,255	5,497	(1,242)
Texas	—	32	(32)
South Carolina	—	2	(2)
Total	4,255	5,531	(1,276)

(1) Only includes new and renewal homeowner, commercial and dwelling fire policies written during the year.

(2) We are no longer writing in Texas or South Carolina as of May 31, 2022.

Ceded premiums earned increased by $91,364,000, or 36.4%, to $342,623,000 for the year ended December 31, 2023 from $251,259,000 for 2022. The increase is primarily driven by a $60,804,000 increase in ceded premiums earned from our quota share agreements. This increase can be attributed to the increase in AmCoastal’s quota share reinsurance coverage to 40% effective June 1, 2023 from 10% during the first five months of 2023. In addition, we saw increased costs associated with our Core catastrophe reinsurance program during 2023, driving the remainder of this change.

Net investment income increased by $2,257,000, or 37.3%, to $8,300,000 for the year ended December 31, 2023 from $6,043,000 for 2022, driven by increased interest income due to increased holdings and higher interest rates year-over-year.

Net realized investment losses and net unrealized gains (losses) on equity securities decreased by $2,505,000, or 29.5%, to a net loss of $5,975,000 for the year ended December 31, 2023 from a net loss of $8,480,000 for the year ended December 31,

AMERICAN COASTAL INSURANCE CORPORATION

2022, driven by the liquidation of our fixed maturity securities in an unrealized loss position during 2022 to satisfy liquidity needs. The remainder of this change can be attributed to more favorable market conditions in 2023 resulting in decreased unrealized losses on our investment portfolio.

Expenses

Expenses for the year ended December 31, 2023 decreased $59,786,000, or 26.0%, to $170,548,000, from $230,334,000 for 2022. The decrease in expenses was primarily due to a decrease in loss and LAE as a result of Hurricane Ian making landfall in 2022, which caused a large increase in 2022. The calculations of our combined loss ratios and underlying loss ratios are shown below.


($ in thousands)	Year ended
	December 31,
	2023			2022			Change
Net loss and LAE	$	46,678		$	96,109		$	(49,431)
% of Gross earned premiums	7.7		%	20.3		%	(12.6)		pts
% of Net earned premiums	17.8		%	43.1		%	(25.3)		pts
Less:
Current year catastrophe losses	$	12,783		$	52,288		$	(39,505)
Prior year reserve favorable development	(12,694)			(7,982)			(4,712)
Underlying loss and LAE (1)	$	46,589		$	51,803		$	(5,214)
% of Gross earned premiums	7.7		%	10.9		%	(3.2)		pts
% of Net earned premiums	17.8		%	23.2		%	(5.4)		pts

(1) Underlying loss and LAE is a non-GAAP financial measure and is reconciled above to net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the “Definitions of Non-GAAP Measures” section, above.

The calculations of the Company’s expense ratios are shown below.


($ in thousands)	Year ended
	December 31,
	2023			2022			Change
Policy acquisition costs	$	75,436		$	80,996		$	(5,560)
Operating and underwriting	8,714			12,432			(3,718)
General and administrative	28,845			31,314			(2,469)
Total Operating Expenses	$	112,995		$	124,742		$	(11,747)
% of Gross earned premiums	18.7		%	26.3		%	(7.6)		pts
% of Net earned premiums	43.1		%	56.0		%	(12.9)		pts

Loss and LAE decreased by $49,431,000, or 51.4%, to $46,678,000 for the year ended December 31, 2023, from $96,109,000 for the year ended December 31, 2022. Loss and LAE expense as a percentage of net earned premiums decreased 25.3 points to 17.8% for the year ended December 31, 2023, compared to 43.1% for the year ended December 31, 2022. In addition, during the year ended December 31, 2023, prior year reserve favorable development was higher on both catastrophe and non-catastrophe losses. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2023 would have been 7.7%, a decrease of 3.2 points from 10.9% during the year ended December 31, 2022.

Policy acquisition costs decreased by $5,560,000, or 6.9%, to $75,436,000 for the year ended December 31, 2023, from $80,996,000 for the year ended December 31, 2022. The primary driver of the decrease in expense was an increase in ceding commission income of $26,662,000, driven by the changes in the terms of our quota share reinsurance agreements. This was partially offset by increased external management fees and premium taxes of $19,406,000 and $1,707,000, respectively, both of which fluctuated in conjunction with the year-over-year increase in gross written premium.

Operating and underwriting expenses decreased by $3,718,000, or 29.9%, to $8,714,000 for the year ended December 31, 2023, from $12,432,000 for the year ended December 31, 2022, driven by decreased operating costs totaling $3,791,000, driven

AMERICAN COASTAL INSURANCE CORPORATION

by decreased investments in technology and decreased costs such as printing, postage, rent and utilities as we looked to reduce our overhead spending year-over-year.

General and administrative expenses decreased by $2,469,000, or 7.9%, to $28,845,000 for the year ended December 31, 2023, from $31,314,000 for the year ended December 31, 2022, driven by a decrease in depreciation and amortization costs of $3,159,000 year-over-year.

We experienced favorable reserve development in the current year and its historical impact on our net loss and net underlying loss ratios is outlined in the following table.


	Historical Reserve Development
($ in thousands, except ratios)	2021			2022			2023
Prior year reserve favorable development	$	(4,198)		$	(7,982)		$	(12,694)
Development as a % of earnings before interest and taxes	(184.4)		%	(71.5)		%	(11.9)		%
Consolidated net loss and LAE ratio (LR)	31.1		%	43.1		%	17.8		%
Prior year reserve favorable development on LR	(2.4)		%	(3.6)		%	(4.9)		%
Current year catastrophe losses on LR	5.4		%	23.5		%	4.9		%
Underlying net loss and LAE ratio(1)	28.1		%	23.2		%	17.8		%

(1) Underlying net loss and LAE Ratio is a non-GAAP measure and is reconciled above to the Consolidated net loss and LAE Ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the “Definitions of Non-GAAP Measures” section, above.

AMERICAN COASTAL INSURANCE CORPORATION

ANALYSIS OF FINANCIAL CONDITION

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and related notes in Part II, Item 8 in this Recast 2023 Form 10-K.

Investments

The primary goals of our investment strategy are to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors that represent the most attractive relative value, and we maintain a moderate equity exposure. Limiting equity exposure manages risks and helps to preserve capital for two reasons: first, bond market returns are less volatile than stock market returns, and second, should the bond issuer enter bankruptcy liquidation, bondholders generally have a higher priority than equity holders in a bankruptcy proceeding.

We must comply with applicable state insurance regulations that prescribe the type, quality and concentrations of investments our insurance subsidiaries can make; therefore, our current investment policy limits investment in non-investment-grade fixed maturities and limits total investment amounts in preferred stock, common stock and mortgage notes receivable. We do not invest in derivative securities. Large catastrophe losses such as Hurricane Ian in 2022 can present significant liquidity demands to the Company stemming from higher than normal frequency and severity of insurance claims. This can lead to the selling of securities that we intended to hold until maturity and realizing untimely gains or losses.

Two outside asset management companies, which have authority and discretion to buy and sell securities for us, manage our investments subject to (i) the guidelines established by our Board of Directors and (ii) the direction of management. The Investment Committee of our Board of Directors reviews and approves our investment policy on a regular basis.

Our cash and investment portfolios totaled $311,874,000 at December 31, 2023 compared to $269,374,000 at December 31, 2022.

The following table summarizes our investments, by type:


	December 31, 2023				December 31, 2022
	Estimated Fair Value		Percent of Total		Estimated Fair Value		Percent of Total
U.S. government and agency securities	$	26,002	8.3	%	$	—	—	%
Foreign governments	—		—	%	991		0.4	%
States, municipalities and political subdivisions	16,964		5.4	%	19,994		7.4	%
Public utilities	3,288		1.1	%	5,885		2.2	%
Corporate securities	48,026		15.5	%	63,774		23.7	%
Mortgage-backed securities	34,622		11.1	%	41,536		15.4	%
Asset-backed securities	9,485		3.0	%	17,964		6.7	%

Total fixed maturities	138,387		44.4	%	150,144		55.8	%
Mutual fund	—		—	%	15,657		5.8	%



Total equity securities	—		—	%	15,657		5.8	%
Other investments	16,487		5.3	%	3,675		1.4	%

Total investments	154,874		49.7	%	169,476		63.0	%
Cash and cash equivalents	138,930		44.5	%	53,910		19.9	%
Restricted cash	18,070		5.8	%	45,988		17.1	%
Total cash, cash equivalents, restricted cash and investments	$	311,874	100.0	%	$	269,374	100.0	%

We classify all of our investments as available-for-sale. Our investments at December 31, 2023 and 2022 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings in 2022 consisted mainly of securities issued by companies in the financial, utilities and industrial sectors or mutual funds. We held no equities as of December 31, 2023. Most of the corporate bonds we hold reflected a similar diversification. At December 31, 2023, approximately 83.2% of our fixed maturities were U.S. Treasuries, or corporate bonds rated “A” or better, and 16.8% were corporate bonds rated “BBB” or “BB”, including our investments held in discontinued operations.

AMERICAN COASTAL INSURANCE CORPORATION

During the year ended December 31, 2022, as a result of UPC’s plan of run-off, management determined that it was more likely than not that we would be required to sell a portion or all of our fixed-income securities attributable to the entity before recovery of their amortized cost basis. These securities were evaluated and none of the unrealized loss position was the result of a credit loss. As a result, we realized impairment losses of $22,718,000 on these securities. Total shareholders’ equity (deficit) was not impacted by such charge; however, our net loss for the year ended December 31, 2022 worsened and other comprehensive income improved by $22,718,000, before tax impacts, in offsetting amounts. The impact on our net loss is captured within our discontinued operations.

Reinsurance

We follow industry practice of reinsuring a portion of our risks. Reinsurance involves transferring, or “ceding”, all or a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain primarily liable for the entire insured loss under the policies we write.

Our catastrophe reinsurance programs are designed primarily by utilizing third-party catastrophe modeling software and consulting with third-party reinsurance experts to project our exposure to catastrophe events. We evaluate modeled expected losses developed by the catastrophe modeling software using our risk portfolio data to estimate probable maximum losses (PML) across multiple return periods and the average annual loss. The Company monitors and manages its catastrophe risk using this model output along with other internal and external data sources, such as our historical loss experience and industry loss experience, to develop our view of catastrophe risk.

Our catastrophe reinsurance coverages consists of three separate placements:

1.AmCoastal’s core catastrophe reinsurance program in effect June 1 through May 31, annually, which includes excess of loss and quota share treaties providing coverage for catastrophe losses from named or numbered windstorms and earthquakes;

2.AmCoastal’s all other perils catastrophe excess of loss agreement in effect January 1, through December 31, annually, which provides protection from catastrophe loss events other than named windstorms and earthquakes; and

3.IIC’s core catastrophe reinsurance program in effect June 1, through May 31, annually, which provides protection from all catastrophe losses.

This reinsurance protection is an essential part of our catastrophe risk management strategy. It is intended to provide our stockholders an acceptable return on the risks assumed by our insurance entities, and to reduce variability of earnings, while providing surplus protection. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for the agreed-upon portion of our gross paid losses, they do not discharge our primary liability. In the event one or more of our reinsurers fail to fulfill their obligation, the surplus of our statutory entities may decline, and we may not be able to fulfill our obligation to policyholders, or we may not be able to maintain compliance with various regulatory financial requirements. Additionally, we face the risk that actual losses incurred from one or more catastrophic events may be above the modeled expected loss resulting in losses exceeding our reinsurance coverage, which may result in a decline in surplus, and as a result we may not be able to fulfill our obligations to policyholders, or we may not be able to maintain compliance with various regulatory financial requirements. The details of our programs and likelihood of a catastrophic event exceeding these three coverages are outlined below.

AmCoastal’s core catastrophe reinsurance program provides occurrence-based coverage up to an exhaustion point of approximately $1,100,000,000 for a first occurrence and $1,300,000,000 in the aggregate. Under this program, our retention on a first and second event is $10,000,000 each, plus $2,250,000 retained separately by our captive. AmCoastal’s program provides sufficient coverage for a 1-in-150-year return period, indicating that the probability of a single occurrence exceeding protection purchased is roughly 0.7% estimated by equally blending the AIR and RMS catastrophe models using long-term catalogs including demand surge. AmCoastal’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%. While we believe these catastrophe models are very good tools and their output provides reasonable proxies for the probability of exhausting our reinsurance protections, they are imperfect so actual results could vary dramatically from those expected.

AmCoastal’s all other perils catastrophe excess of loss agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $101,000,000. This agreement provides sufficient coverage for a 1-in-250-year return period, indicating that the probability of a single occurrence exceeding protection purchased is no more than 0.4%.

AMERICAN COASTAL INSURANCE CORPORATION

IIC’s core catastrophe reinsurance program, which is not reported as discontinued operations, provides coverage up to an exhaustion point of approximately $82,000,000 in the aggregate, with a retention of $3,000,000 per occurrence. Based on IIC’s PML, the program provides sufficient coverage for a 1-in-130 year return period, indicating the probability of a single occurrence exceeding protection purchased is no more than 0.8%. IIC’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%.

Effective December 15, 2023, we agreed to commute a private reinsurer’s share of core catastrophe reinsurance coverage and replace this gap in coverage with new coverage provided by one of our other private reinsurers. This transaction resulted in additional expense of approximately $6,300,000 for the year ended December 31, 2023, but will result in decreased expense totaling $14,300,000 during the first half of 2024, resulting in a net economic benefit of approximately $8,000,000 net of replacement coverage for the period December 15, 2023 through May 31, 2024.

During the third quarter of 2022, the Company's core catastrophe reinsurance program was impacted by Hurricane Ian. As a result, the Company has approximately $508 million of occurrence limit remaining for Hurricane Ian, all of which is attributable to AmCoastal only. After reinstatement premiums of approximately $15.4 million, the Company, with its former subsidiary UPC, has approximately $980 million of aggregate limit remaining for events subsequent to Hurricane Ian, based on our estimated ultimate net loss subject to the core catastrophe reinsurance program.

During the third quarter of 2022, one of our private reinsurers who held a 100% share of the $15,000,000 in excess of $15,000,000 layer on our all other perils catastrophe excess of loss agreement notified us of their intent to terminate the agreement due to the contractual provision regarding the change in UPC's statutory surplus being greater than 25%. We agreed to a termination and commutation date of September 30, 2022 for this contract. This change resulted in approximately $1,300,000 of ceded premium savings that would have otherwise been due in the fourth quarter of 2022 and the Company retaining all the risk for any non-hurricane catastrophe losses up to $30,000,000, excluding any quota share recoveries.

The table below outlines our quota share agreements in effect for the years ended December 31, 2023 and 2022. The impacts of these quota share agreements on our former subsidiary, UPC's financial statements are included in discontinued operations.

Reinsurer

Companies in Scope (1)

Effective Dates

Cession Rate

States in Scope

External third-party

AmCoastal

06/01/2023 - 06/01/2024

40% (2)

Florida

External third-party

UPC, FSIC & AmCoastal

06/01/2022 - 06/01/2023

10% (2)

Florida, Louisiana, Texas

TypTap

UPC

06/01/2022 - 06/01/2023

100% (3)

Georgia, North Carolina, South Carolina

External third-party

UPC, FSIC & AmCoastal

12/31/2021 - 12/31/2022

8% (2)

Florida, Louisiana, Texas

HCPCI

UPC

12/31/2021 - 06/01/2022

85%

Georgia, North Carolina, South Carolina

External third-party

UPC & FSIC

12/31/2021 - 12/31/2022

25% (4)

Florida, Louisiana, Texas

HCPCI / TypTap (5)

UPC

06/01/2021 - 06/01/2022

100% (3)

Connecticut, New Jersey, Massachusetts, Rhode Island

External third-party

UPC, FSIC & AmCoastal (6)

06/01/2021 - 06/01/2022

15% (2)

Florida, Georgia, Louisiana, North Carolina, South Carolina, Texas

IIC

UPC

12/31/2020 - 12/31/2022

100%

New York

(1) Effective May 31, 2022, FSIC was merged into UPC, with UPC being the surviving entity.

(2) This treaty provides coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides ground- up protection effectively reducing our retention for catastrophe losses.

(3) This treaty provides coverage on our in-force, new and renewal policies until these states are transitioned to HCPCI or TypTap upon renewal.

(4) This treaty provides coverage on non-catastrophe losses on policies in-force on the effective date of the agreement.

(5) Cessions are split 50% to HCPCI and 50% to TypTap.

(6) This treaty was amended effective December 31, 2020 to include AmCoastal.

AMERICAN COASTAL INSURANCE CORPORATION

Reinsurance costs as a percent of gross earned premium during the years ended December 31, 2023 and 2022 were as follows:


	2023		2022
Non-at-Risk	(0.3)	%	(0.5)	%
Quota Share	(21.7)		(14.9)
All Other	(34.6)		(37.6)
Total Ceding Ratio	(56.6)	%	(53.0)	%

Reinsurance costs as a percent of gross earned premium for IIC, which is now captured within discontinued operations, during the years ended December 31, 2023 and 2022 were as follows:


	IIC
	2023		2022
Non-at-Risk	(2.9)	%	(1.2)	%
Quota Share	—		—
All Other	(33.7)		(22.9)
Total Ceding Ratio	(36.6)	%	(24.1)	%

We amortize our ceded unearned premiums over the annual agreement period, and we record that amortization in ceded premiums earned on our Consolidated Statements of Comprehensive Loss. The table below summarizes the amounts of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums:


	Year Ended December 31,
		2023		2022		2021
Quota Share		$	(201,315)	$	(53,010)	$	(75,277)
Excess-of-loss		(210,975)		(174,073)		(167,405)
Equipment, identity theft, and cyber security		(1,172)		(2,269)		(751)


Ceded premiums written		$	(413,462)	$	(229,352)	$	(243,433)
Change in ceded unearned premiums		70,839		(21,907)		9,228
Ceded premiums earned		$	(342,623)	$	(251,259)	$	(234,205)

The breakdown of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums for IIC, which is now captured in discontinued operations, can be seen in the tables below.


	Year Ended December 31,
		2023		2022		2021

Excess-of-loss		$	(8,338)	$	(14,041)	$	(14,190)
Equipment, identity theft, and cyber security		(931)		(798)		(748)


Ceded premiums written		$	(9,269)	$	(14,839)	$	(14,938)
Change in ceded unearned premiums		(2,188)		75		4,513
Ceded premiums earned		$	(11,457)	$	(14,764)	$	(10,425)

Current year catastrophe losses disaggregated between named and numbered storms and all other catastrophe loss events are shown in the following table.

AMERICAN COASTAL INSURANCE CORPORATION



	Number of Events	Incurred Loss and Loss adjustment expense (LAE) (1)		Combined Ratio Impact
December 31, 2023
Current period catastrophe losses incurred
Named and numbered storms	1	$	600	0.2	%
All other catastrophe loss events	10	12,183		4.7	%
Total	11	$	12,783	4.9	%

December 31, 2022
Current period catastrophe losses incurred
Named and numbered storms	2	$	52,076	23.4	%
All other catastrophe loss events	7	212		0.1	%
Total	9	$	52,288	23.5	%

December 31, 2021
Current period catastrophe losses incurred
Named and numbered storms	4	$	158	0.1	%
All other catastrophe loss events	10	9,372		5.3	%
Total	14	$	9,530	5.4	%

(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.

The impact of the current year catastrophes to IIC, which is now captured within discontinued operations, can be seen in the tables below.



	Number of Events	Incurred Loss and Loss adjustment expense (LAE) (1)		Combined Ratio Impact
December 31, 2023
Current period catastrophe losses incurred
Named and numbered storms	1	$	129	—	%
All other catastrophe loss events	13	2,367		0.9	%
Total	14	$	2,496	0.9	%

December 31, 2022
Current period catastrophe losses incurred
Named and numbered storms	—	$	—	—	%
All other catastrophe loss events	11	5,618		12.1	%
Total	11	$	5,618	12.1	%

December 31, 2021
Current period catastrophe losses incurred
Named and numbered storms	3	$	3,984	8.9	%
All other catastrophe loss events	7	2,182		4.9	%
Total	10	$	6,166	13.8	%

AMERICAN COASTAL INSURANCE CORPORATION

See Note 9 in our Notes to Consolidated Financial Statements for additional information regarding our reinsurance program.

Unpaid Losses and Loss Adjustments

We generally use the term “loss(es)” to collectively refer to both loss and LAE. We establish reserves for both reported and unreported unpaid losses that have occurred at or before the balance sheet date for amounts we estimate we will be required to pay in the future, including provisions for claims that have been reported but are unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the balance sheet date. Our policy is to establish these loss reserves after considering all information known to us at each reporting period. At any given point in time, our loss reserve represents our best estimate of the ultimate settlement and administration costs of our insured claims incurred and unpaid.

Unpaid losses and LAE totaled $347,738,000 and $816,489,000 as of December 31, 2023 and 2022, respectively. This balance has decreased from December 31, 2022 as we continue to settle claims related to Hurricane Ian which made landfall in the third quarter of 2022. In addition, unpaid losses related to IIC totaled $22,483,000 and $26,469,000 as of December 31, 2023 and 2022, respectively, which have been classified as discontinued operations.

Since the process of estimating loss reserves requires significant judgment due to a number of variables, such as fluctuations in inflation, judicial decisions, legislative changes and changes in claims handling procedures, our ultimate liability will likely differ from these estimates. We revise our reserve for unpaid losses as additional information becomes available, and reflect adjustments, if any, in our earnings in the periods in which we determine the adjustments as necessary.

See Note 10 in our Notes to Consolidated Financial Statements for additional information regarding our losses and LAE.

Discontinued Operations

On February 10, 2023, we announced that a solvent run-off for UPC was unlikely and on February 27, 2023, UPC was placed into receivership with the Florida Department of Financial Services (DFS) which divested our ownership of UPC. As a result, UPC, as well as the activities related directly to supporting the business conducted by UPC, qualifies as a discontinued operation.

In addition, on May 9, 2024, the Company entered into a Sale Agreement with Forza in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of IIC. The aggregate purchase price for the shares will be equal to IIC's GAAP shareholder’s equity on the closing date. Closing is subject to customary closing conditions, including NYDFS approval of Forza's application for acquisition of control, and NYDFS approval of a new rate and form filing. We have recast our Consolidated Financial Statements to exclude the results of our discontinued operations, in conformity with the U.S. generally accepted accounting principles (GAAP). For more information regarding the results of our discontinued operations, see Note 3 in our Notes to Consolidated Financial Statements.

A comparison of the results of IIC's operations for the years ended December 31, 2023 and 2022 can be seen below.

IIC Year over Year Results

Net loss attributable to IIC for the year ended December 31, 2023 decreased $12,446,000, or 80.5%, to $3,006,000 from $15,452,000 for the same period in 2022. The details of the revenues and expenses that drove this change have been outlined below.

Revenue

IIC gross written premiums decreased $9,849,000, or 22.3%, to $34,334,000 for the year ended December 31, 2023 from $44,183,000 for the same period in 2022. This decrease was driven primarily by a decrease in assumed premiums as the quota share agreement with our former subsidiary UPC was no longer effective in 2023, partially offset by increased direct written premiums as these UPC policies renewed directly onto IIC’s books in 2023. The change in IIC gross written premiums and new and renewal policies quarter-over-quarter can be seen below.

AMERICAN COASTAL INSURANCE CORPORATION


($ in thousands)	Year Ended December 31,
	2023		2022		Change




Direct Written Premium	$	34,334	$	25,101	$	9,233
Assumed Premiums	—		19,082		(19,082)
Total gross written premium	$	34,334	$	44,183	$	(9,849)

New and Renewal Policies (1)	20,244		3,892		16,352

(1) Only includes new and renewal homeowner and dwelling fire policies written during the year.

Net investment income increased by $644,000, or 39.5%, to $2,274,000 for the year ended December 31, 2023 from $1,630,000 for 2022, driven by increased interest income due to increased holdings and higher interest rates year-over-year.

Expenses

Expenses attributable to IIC for the year ended December 31, 2023 decreased $39,019,000, or 59.8%, to $26,263,000 from $65,282,000 for the same period in 2022. The decrease in expenses was primarily due to a decrease in our loss and LAE incurred during 2023, driven by decreased current year catastrophe and non-catastrophe losses incurred. The details of these changes can be seen below.

The calculations of our loss ratios and underlying loss ratios are shown below.


	Year Ended December 31,
	2023			2022			Change
Net loss and LAE	$	16,183		$	38,696		$	(22,513)
% of Gross earned premiums	51.7		%	63.2		%	(11.5) pts
% of Net earned premiums	81.6		%	83.4		%	(1.8) pts
Less:
Current year catastrophe losses	$	2,496		$	5,618		$	(3,122)
Prior year reserve favorable development	400			(2,887)			3,287
Underlying loss and LAE (1)	$	13,287		$	35,965		$	(22,678)
% of Gross earned premiums	42.5		%	58.8		%	(16.3) pts
% of Net earned premiums	67.0		%	77.5		%	(10.5) pts

(1) Underlying loss and LAE is a non-GAAP measure and is reconciled above to net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.

The calculations of our expense ratios are shown below.


	Year Ended December 31,
	2023			2022			Change
Policy acquisition costs	$	7,910		$	14,322		$	(6,412)
Operating and underwriting	1,526			1,297			229
General and administrative	644			10,967			(10,323)
Total Operating Expenses	$	10,080		$	26,586		$	(16,506)
% of Gross earned premiums	32.2		%	43.5		%	(11.3) pts
% of Net earned premiums	50.8		%	57.3		%	(6.5) pts

Loss and LAE attributable to IIC decreased $22,513,000, or 58.2%, to $16,183,000 for the year ended December 31, 2023 from $38,696,000 for the same period in 2022. Loss and LAE expense as a percentage of net earned premiums decreased 1.8 pts to 81.6% for the year ended December 31, 2023, compared to 83.4% for the same period in 2022. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2023 was 42.5%, a decrease of 16.3 pts from 58.8% during the year ended December 31, 2022.

AMERICAN COASTAL INSURANCE CORPORATION

Policy acquisition costs attributable to IIC decreased $6,412,000, or 44.8%, to $7,910,000 for the year ended December 31, 2023 from $14,322,000 for the same period in 2022. The primary driver of the decrease was an decrease in reinsurance commissions paid to our former subsidiary UPC of $9,795,000, driven by the termination of the quota share agreement effective December 31, 2022. This was partially offset by an increase in agent commissions, policy administration fees and premium taxes of $1,795,000, $584,000 and $243,000, respectively, driven by the increase in gross written premium year-over-year.

Operating and underwriting expenses attributable to IIC increased $229,000, or 17.7%, to $1,526,000 for the year ended December 31, 2023 from $1,297,000 for the year ended December 31, 2022, driven by increased underwriting costs of $253,000 year-over-year.

General and administrative expenses attributable to IIC decreased $10,323,000, or 94.1%, to $644,000 for the year ended December 31, 2023 from $10,967,000 for the same period in 2022 driven by a one-time goodwill impairment charge of $10,157,000 taken in 2022. Excluding this charge, IIC general and administrative expenses decreased $166,000 year-over-year.

LIQUIDITY AND CAPITAL RESOURCES

We generate cash through premium collections, reinsurance recoveries, investment income, the sale or maturity of invested assets, the issuance of debt and the issuance of additional shares of our stock. We use our cash to pay reinsurance premiums, claims and related costs, policy acquisition costs, salaries and employee benefits, other expenses and stockholder dividends, acquire subsidiaries and pay associated costs, as well as to repay debts and purchase investments.

As a holding company, we do not conduct any business operations of our own and, as a result, we rely on cash dividends or intercompany loans from our management subsidiaries to pay our general and administrative expenses. Insurance regulatory authorities heavily regulate our insurance subsidiaries, including restricting any dividends paid by our insurance subsidiaries and requiring approval of any management fees our insurance subsidiaries pay to our management subsidiaries for services rendered; however, nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency. Our management subsidiaries pay us dividends primarily using cash from the collection of management fees from our insurance subsidiaries, pursuant to the management agreements in effect between those entities. In accordance with state laws, our insurance subsidiaries may pay dividends or make distributions out of that part of their statutory surplus derived from their net operating profit and their net realized capital gains. The RBC guidelines published by the NAIC may further restrict our insurance subsidiaries’ ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause their respective surplus as it regards policyholders to fall below minimum RBC guidelines. See Note 15 in our Notes to Consolidated Financial Statements and Part II, Item 5 for additional information.

During the year ended December 31, 2023, we made no capital contributions to our subsidiaries. During the year ended December 31, 2022, we contributed $81,000,000 and $11,200,000 to our former insurance subsidiaries, UPC and FSIC, respectively. The contribution made to FSIC was made prior to the merging of FSIC into UPC. In addition, we contributed $9,574,000 to our reinsurance subsidiary, UPC Re. During the year ended December 31, 2021, we contributed $17,000,000, $8,000,000 and $17,500,000 to our former insurance subsidiaries, UPC, FSIC, and ACIC, respectively.

During 2022, we received a dividend of $26,000,000 from ACIC. During February 2021, we received a dividend of $3,500,000 from IIC.

In September 2023, the Company entered into an equity distribution agreement (the “Agreement”) with Raymond James & Associates, Inc., as agent (the “Agent”), relating to the issuance and sale from time to time by the Company, through the Agent, of up to 8,000,000 shares of the Company’s common stock, par value $0.0001 per share (the “Shares”). Sales of the Shares under the Agreement will be made in sales deemed to be “at the market offerings”. The Agent is not required to sell any specific amount of Shares but agreed to act as the Company’s sales agent for a commission equal to 3.0% of the gross proceeds from the sales of the Shares. As of December 31, 2023, 3,373,000 shares had been sold under the Agreement resulting in commissions paid of approximately $829,000 and net proceeds of approximately $26,792,000 and as of the date of this filing, approximately 4,373,000 shares have been sold under the agreement resulting in commissions paid of approximately $1,181,000 and net proceeds of approximately $38,190,000. The Agreement will terminate upon the issuance and sale of all Shares subject to the Agreement, or the Agreement may be suspended or discontinued at any time. The Company does not plan to sell additional shares under the at-the-market program during the first half of 2024.

AMERICAN COASTAL INSURANCE CORPORATION

On December 13, 2017, we issued $150,000,000 of senior notes (Senior Notes) that will mature on December 15, 2027 and bear interest at a rate equal to 6.25% per annum payable semi-annually on each June 15 and December 15, commencing June 15, 2018. The Senior Notes are senior unsecured obligations of the Company. We may redeem the Senior Notes at our option, at any time and from time to time in whole or in part, at a redemption price equal to the greater of (i) 100% of the principal amount of the Senior Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the date of redemption to the date that is three months prior to maturity. On and after that date, we may redeem the Senior Notes at par. On December 8, 2022, the Kroll Bond Rating Agency, LLC announced a downgrade of our issuer and debt ratings BBB- to BB+. As a result, pursuant to our agreement, the interest rate of our Senior notes increased from 6.25% to 7.25% effective on June 15, 2023.

As a result of claim activity from the current and prior years, we have an obligation related to the unpaid policyholder losses and unpaid loss adjustment expenses associated with the settling of these claims. As of December 31, 2023, our total obligation related to these claim payments was $370,221,000, of which we estimate $132,176,000 to be short-term in nature (due in less than twelve months), based upon our cumulative claims paid over the last 22 years. This value includes IIC, which is classified as discontinued operations but is still our obligation until the sale of the entity is complete. While we believe that historical performance of loss payment patterns is a reasonable source for projecting future claim payments, there is inherent uncertainty in this estimated projected settlement, and as a result these estimates will differ, perhaps significantly, from actual future payments.

In addition to our unpaid loss and loss adjustment expenses, as of December 31, 2023 we have outstanding debt obligations related to our notes payable totaling $150,000,000. This is exclusive of interest costs, which we estimate will total $43,500,000 over the life of the debt, based on the current fixed interest rates of these notes. Our short-term obligation related to these notes payable total $10,875,000 in estimated interest payments and no principal payments. For more information regarding these outstanding notes, please see Note 11.

In connection with entering into contracts with our outside vendors, we have minimum obligations due to our vendors over the life of the contracts. Our main vendor obligations are related to underwriting tools, claims and policy administration systems. Our total obligation related to these two categories of obligations are $1,394,000, and $591,000, respectively. Of these obligations, $697,000, and $285,000, respectively are short-term in nature.

Cash Flows for the Year Ended December 31, (in millions)

Operating Activities

The principal cash inflows from our operating activities come from premium collections, reinsurance recoveries and investment income. The principal cash outflows from our operating activities are the result of claims and related costs, reinsurance premiums, policy acquisition costs and salaries and employee benefits. A primary liquidity concern with respect to these cash flows is the risk of large magnitude catastrophe events.

During the year ended December 31, 2023, we experienced cash outflows of $136,003,000 compared to outflows of $173,113,000 during the year ended December 31, 2022. This change in outflows was driven by an increase in net income of

AMERICAN COASTAL INSURANCE CORPORATION

$485,333,000, net of adjustments to reconcile net income to cash. This was partially offset by a decrease in changes to our balance sheet operating assets and liabilities of $448,223,000. The change in net income can be attributed to a large net loss experienced by our former subsidiary, UPC, during 2022, as a result of Hurricane Ian exhausting our reinsurance coverage. The change in our operating assets and liabilities can be attributed to the placement of UPC into receivership in 2023 as a result of the loss above, divesting our ownership of UPC during 2023.

Investing Activities

The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to purchases of investments. Additional cash outflows relate to the purchase of fixed assets. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the year ended December 31, 2023, cash provided by investing activities decreased $239,379,000, driven by the divestiture of UPC which resulted in $232,582,000 in cash being removed.

Financing Activities

The principal cash inflows from our financing activities come from issuances of debt and other securities. The principal cash outflows come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market disruption in the cost and availability of credit. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements. During the year ended December 31, 2023, cash provided by financing activities increased by $52,159,000 due primarily to proceeds from the issuance of our common stock in 2023. This increase was partially offset by the return of capital related to our former noncontrolling interest of $18,335,000 during 2022 and a decrease in dividend payments of $2,589,000 since no dividends were declared in 2023.

RECENT ACCOUNTING STANDARDS

Please refer to Note 2(u) in our Notes to Consolidated Financial Statements for a discussion of recent accounting standards that may affect us.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates include those used in determining:

•reserves for unpaid losses,

•fair value of investments,

•investment portfolio credit allowances, and

•goodwill.

In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance industry. It is reasonably likely that changes in these estimates could occur from time to time and result in a material impact on our consolidated financial statements.

In addition, the preparation of our financial statements in accordance with GAAP prescribes when we may reserve for particular risks, including litigation exposures. Accordingly, our results for a given reporting period could be significantly

AMERICAN COASTAL INSURANCE CORPORATION

affected if and when we establish a reserve for a major contingency. Therefore, the results we report in certain accounting periods may appear to be volatile and past results may not be indicative of results in future periods.

Reserves for Unpaid Losses and LAE

Reserves for unpaid losses and LAE represent the most significant accounting estimate inherent in the preparation of our financial statements. These reserves represent management’s best estimate of the amount we will ultimately pay for losses and we base the amount upon the application of various actuarial reserve estimation techniques as well as considering other material facts and circumstances known at the balance sheet date.

As discussed in Note 10 in our Notes to Consolidated Financial Statements, we determine our ultimate losses by using multiple actuarial methods to determine an actuarial estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques. Our selection of the actuarial estimate is influenced by the analysis of our historical loss and claims experience since inception. For each accident year, we estimate the ultimate incurred losses for both reported and unreported claims. In establishing this estimate, we reviewed the results of various actuarial methods discussed in Note 10 in our Notes to Consolidated Financial Statements.

Fair Value of Investments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We use quoted prices from active markets and we use an independent third-party valuation service to assist us in determining fair value. We obtain only one single quote or price for each financial instrument.

As discussed in Note 4 in our Notes to Consolidated Financial Statements, we value our investments at fair value using quoted prices from active markets, to the extent available. For securities for which quoted prices in active markets are unavailable, we use observable inputs such as quoted prices in inactive markets, quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs. We also have investments in limited partnerships that require us to use the net asset value per share method of valuation to determine fair value.

See “Item 7a. Quantitative and Qualitative Disclosures about Market Risk” for more information regarding the sensitivity of our fixed maturity portfolio to changes in interest rates.

Investment Portfolio Credit Allowances

For investments classified as available for sale, the difference between fair value and cost or amortized cost for fixed income securities is reported as a component of accumulated other comprehensive loss on our Consolidated Balance Sheet and is not reflected in our net loss of any period until reclassified to net loss upon the consummation of a transaction with an unrelated third party. We have a portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be impaired as the result of a credit loss.

For each fixed-income security in an unrealized loss position, if we determine that we intend to sell the security or that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, the security's entire decline in fair value is recorded in earnings.

If our management decides not to sell the fixed-income security and it is more likely than not that we will not be required

to sell the fixed-income security before recovery of its amortized cost basis, we evaluate whether the decline in fair value has

resulted from credit losses or other factors. This is typically indicated by a change in the rating of the security assigned by a

rating agency, and any adverse conditions specifically related to the security or industry, among other factors. If the assessment

indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to

the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized

cost basis, a credit loss exists and an allowance for credit losses will be recorded in earnings. Credit loss is limited to the

difference between a security's amortized cost basis and its fair value. Any additional impairment not recorded through an

allowance for credit losses is recognized in other comprehensive loss.

If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an allowance for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive loss. If we determine that the fixed

AMERICAN COASTAL INSURANCE CORPORATION

income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

Due to the adoption of Accounting Standards Update (ASU) 2016-01 (ASU 2016-01) as of January 1, 2018, equity securities are reported at fair value with changes in fair value, including impairment write-downs, being recognized in the revenue section of our Consolidated Statements of Comprehensive Loss.

See Note 2(b) in our Notes to Consolidated Financial Statements for further information regarding our credit loss testing.

Measurement of Goodwill and Related Impairment

Goodwill is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized but is tested

for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate,

indicate that there may be justification for conducting an interim test. We test goodwill for impairment by performing a

quantitative assessment. Goodwill is impaired when it is determined that the carrying value of a reporting segment is in excess of the fair value of that reporting segment. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments.

Please refer to Note 2(k) and Note 8 in our Notes to Consolidated Financial Statements for further information regarding our measurement of Goodwill and Related Impairment.

RELATED PARTY TRANSACTIONS

There were no related party transactions for the years ended December 31, 2023, 2022 and 2021.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our investment objective is to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. Our current investment policy limits investment in non-investment grade debt securities, and limits total investments in preferred stock, common stock and mortgage notes receivables. We also comply with applicable laws and regulations that further restrict the type, quality and concentration of our investments. In general, these laws and regulations permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, and preferred and common equity securities.

Our investment policy was established by the Investment Committee of our Board of Directors and is reviewed regularly. Pursuant to this investment policy, our fixed-maturity portfolio is classified as available for sale and we report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive loss within our stockholders’ equity (deficit). We do not hold any securities that are classified as held to maturity and we do not hold any securities for trading or speculation. We do not utilize any swaps, options, futures or forward contracts to hedge or enhance our investment portfolio. The unrealized gains or losses related to our equity securities are recorded on the income statement per the guidance in ASU 2016-01.

INTEREST RATE RISK

Fixed-income securities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movements in interest rates and considering our future capital and liquidity requirements.

AMERICAN COASTAL INSURANCE CORPORATION

The following table illustrates the impact of hypothetical changes in interest rates on the fair value of our fixed-income securities at December 31, 2023 and 2022:


					Percentage
					Increase
			Change in		(Decrease) in
	Estimated		Estimated		Estimated
Hypothetical Change in Interest Rates	Fair Value		Fair Value		Fair Value
2023
300 basis point increase	$	123,323	$	(15,064)	(10.9)	%
200 basis point increase	128,341		(10,046)		(7.3)
100 basis point increase	133,362		(5,025)		(3.6)
Fair value	138,387		—		—
100 basis point decrease	143,416		5,029		3.6
200 basis point decrease	148,447		10,060		7.3
300 basis point decrease	$	153,482	$	15,095	10.9	%


2022
300 basis point increase	$	129,447	$	(20,697)	(13.8)	%
200 basis point increase	136,341		(13,803)		(9.2)
100 basis point increase	143,240		(6,904)		(4.6)
Fair value	150,144		—		—
100 basis point decrease	157,054		6,910		4.6
200 basis point decrease	163,968		13,824		9.2
300 basis point decrease	$	170,888	$	20,744	13.8	%

Our calculations of the potential effects of hypothetical interest rate changes are based on several assumptions, including maintenance of the existing composition of fixed-income investments, and should not be considered indicative of future results. Based on our analysis, a 300-basis point decrease or increase in interest rates from the December 31, 2023 rates would have a material impact on our results of operations and cash flows in the event divesting of these holdings was necessary. However, we do not anticipate the need to sell securities in an unrealized loss position as of December 31, 2023.

CREDIT RISK

Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuer of our fixed-maturity securities. We mitigate this risk by generally investing in investment grade securities and by diversifying our investment portfolio to avoid concentrations in any single issuer or market sector.

AMERICAN COASTAL INSURANCE CORPORATION

The following table presents the composition of our fixed-income security portfolio by rating at December 31, 2023 and 2022:


			% of Total
	Amortized		Amortized				% of Total
Comparable Rating	Cost		Cost		Fair Value		Fair Value
2023
AAA	$	36,452	23.4	%	$	31,482	22.7	%
AA+, AA, AA-	50,997		32.8		47,689		34.5
A+, A, A-	42,692		27.4		37,094		26.8
BBB+, BBB, BBB-	25,545		16.4		22,122		16.0
BB+, BB, BB-	—		—		—		—
Total	$	155,686	100.0	%	$	138,387	100.0	%


2022
AAA	$	44,339	24.8	%	$	38,303	25.5	%
AA+, AA, AA-	25,299		14.2		21,203		14.1
A+, A, A-	69,501		38.8		58,410		38.9
BBB+, BBB, BBB-	38,968		21.8		31,687		21.1
BB+, BB, BB-	649		0.4		541		0.4
Total	$	178,756	100.0	%	$	150,144	100.0	%

In addition, we are exposed to credit risk through our reinsurance program. Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to us. We evaluate the financial condition of our reinsurers and monitor concentrations of credit risk to minimize our exposure to significant losses from reinsurer insolvencies.

We also are exposed to credit risk through our outstanding premiums receivable balances. We evaluate the age of our premium receivables to minimize our exposure to significant losses due to nonpayment.

After our evaluation of all credit risks described above, if we feel it is necessary, we record a credit loss allowance to address these credit risks. For more information regarding our credit loss allowance, please refer to Note 13.

AMERICAN COASTAL INSURANCE CORPORATION

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of American Coastal Insurance Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of American Coastal Insurance Corporation and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income (loss), stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 4, 2024, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Liability for Unpaid Losses and Loss Adjustment Expense — Refer to Notes 2 and 10 to the Financial Statements

Critical Audit Matter Description

As a provider of property and casualty insurance, the Company establishes reserves for both reported and unreported unpaid losses that have occurred at or before the balance sheet date for amounts estimated which they will be required to pay in the future, including provisions for claims that have been reported but are unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the balance sheet date (herein “loss reserves”). Due to the nature and unpredictability in both the severity and frequency of these events and their related claims, the Company uses a significant amount of judgment in estimating the loss reserves, including analyzing historical and industry loss data, claims frequency and severity, claims processing procedures, legislative enactments, judicial decisions and legal developments in imposition of damages, and general economic conditions, including inflation. Additionally, the Company engages independent actuarial specialists in order to assist management in establishing appropriate loss reserves.

Given the subjectivity of estimating the projected losses to be incurred by the Company as it relates to both reported and unreported claims, performing audit procedures to evaluate whether the Company’s loss reserves were appropriately recorded as of December 31, 2023, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the loss reserves included the following, among others:

•We tested the effectiveness of controls related to loss reserves, including management’s controls over the projection of settlement value of reported and unreported claims.

•With assistance from our actuarial specialists, we developed an independent expected range of policy liabilities and unpaid claims reserves based on historical and industry claim development factors.

•We evaluated the methods and assumptions used by management to estimate the loss reserves by:

–Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were reasonable.

–Holding discussions with management to discuss the Company’s ultimate recorded reserve actions and understand any trends that have been observed in the Company’s claims data.

–Comparing management’s prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of the loss reserves.

Tax Impacts of Receivership – Discontinued Operations — Refer to Notes 1, 2, 3 and 14 to the Financial Statements

Critical Audit Matter Description

Effective February 27, 2023, insurance subsidiary, United Property & Casualty Insurance Company (UPC) was placed into receivership with the Florida Department of Financial Services (DFS), which divested the Company’s ownership of UPC and resulted in UPC being classified as a discontinued operation. During the year ended December 31, 2023, the Company evaluated its position based on continuing operations and determined that it was more likely than not that that they would be able to realize the benefits from deferred tax assets that had a valuation allowance against them as of December 31, 2022. On May 15, 2023, the Company entered into the Tax Memorandum with DFS, as a result of which, any benefit received from the use of UPC’s net operating losses by the Company are due to the DFS as receiver of UPC. Additionally, the Company engaged external specialists to assist management in recording its provisions and related deferred tax items.

Given the complexity and unusual nature of the events related to the receivership and the fact that UPC is classified as discontinued operations, performing audit procedures to evaluate the Company’s accounting conclusions and related tax impacts required a high degree of auditor judgment and an and an increased extent of effort, including the need to involve professionals in our firm with expertise in income tax matters.

How the Critical Audit Matter Was Addressed in the Audit

With the assistance of professionals in our firm with expertise in income tax matters, we performed the following procedures, among others, related to the Company’s accounting conclusions and related tax impacts resulting from the receivership:

•We evaluated whether the sources of management’s estimated taxable income were of the appropriate character and sufficient to utilize the deferred tax assets under the relevant tax law.

•We evaluated the relevant factors documented by management to conclude the Company is able to utilize UPC’s net operating losses.

•We assessed the reasonableness of the Company’s allocation of tax provision and attributes to discontinued operations.

/s/ DELOITTE & TOUCHE LLP

Tampa, Florida

October 4, 2024

We have served as the Company's auditor since 2018.

AMERICAN COASTAL INSURANCE CORPORATION

Consolidated Balance Sheets


	December 31,
	2023		2022
ASSETS
Investments, at fair value:
Fixed maturities, available-for-sale (amortized cost of $155,686 and $178,755, respectively)	$	138,387	$	150,144
Equity securities	—		15,657
Other investments (amortized cost of $16,118 and $3,072, respectively)	16,487		3,675

Total investments	154,874		169,476
Cash and cash equivalents	138,930		53,910
Restricted cash	18,070		45,988
Total cash, cash equivalents and restricted cash	157,000		99,898
Accrued investment income	1,767		1,190
Property and equipment, net	3,658		5,293
Premiums receivable, net (credit allowance of $49 and $31, respectively)	45,924		45,049
Reinsurance recoverable on paid and unpaid losses, net (credit allowance of $97 and $333, respectively)	340,820		795,717
Ceded unearned premiums	155,301		84,461
Goodwill	59,476		59,476
Deferred policy acquisition costs, net	21,149		49,136
Intangible assets, net	8,548		11,995
Other assets, net	36,718		3,269
Assets held for disposal	77,143		1,512,536
Total Assets	$	1,062,378	$	2,837,496
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Liabilities:
Unpaid losses and loss adjustment expenses	$	347,738	$	816,489
Unearned premiums	276,157		245,131
Reinsurance payable on premiums	—		23,865
Payments outstanding	706		1,339
Accounts payable and accrued expenses	74,783		69,649
Operating lease liability	739		1,635
Other liabilities	672		5,411
Notes payable, net	148,688		148,355
Liabilities held for disposal	$	44,130	$	1,707,661
Total Liabilities	$	893,613	$	3,019,535
Commitments and contingencies (Note 12)
Stockholders’ Equity (Deficit):
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding	$	—	$	—
Common stock, $0.0001 par value; 100,000,000 shares authorized; 46,989,089 and 43,492,256 issued, respectively; 46,777,006 and 43,280,173 outstanding, respectively	5		4
Additional paid-in capital	423,717		395,631
Treasury shares, at cost; 212,083 shares	(431)		(431)
Accumulated other comprehensive loss	(17,137)		(30,947)
Retained earnings (deficit)	(237,389)		(546,296)


Total Stockholders’ Equity (Deficit)	$	168,765	$	(182,039)
Total Liabilities and Stockholders’ Equity (Deficit)	$	1,062,378	$	2,837,496

See accompanying notes to consolidated financial statements.

AMERICAN COASTAL INSURANCE CORPORATION

Consolidated Statements of Comprehensive Income (Loss)


	Year Ended December 31,
	2023		2022		2021
REVENUE:
Gross premiums written	$	635,709	$	528,160	$	422,321
Change in gross unearned premiums	(31,026)		(53,972)		(11,922)
Gross premiums earned	604,683		474,188		410,399
Ceded premiums earned	(342,623)		(251,259)		(234,205)
Net premiums earned	262,060		222,929		176,194
Net investment income	8,300		6,043		4,694
Net realized investment losses	(6,789)		(6,512)		(33)
Net unrealized gains (losses) on equity securities	814		(1,968)		1,471

Other revenue	15		1,181		—
Total revenues	264,400		221,673		182,326
EXPENSES:
Losses and loss adjustment expenses	46,678		96,109		54,713
Policy acquisition costs	75,436		80,996		80,198
Operating expenses	8,714		12,432		14,863
General and administrative expenses	28,845		31,314		30,403
Interest expense	10,875		9,483		9,303
Total expenses	170,548		230,334		189,480
Income (loss) before other income	93,852		(8,661)		(7,154)
Other income	2,228		10,342		128
Income (loss) before income taxes	96,080		1,681		(7,026)
Provision (benefit) for income taxes	10,876		26,233		(5,937)
Income (loss) from continuing operations, net of tax	$	85,204	$	(24,552)	$	(1,089)
Income (loss) from discontinued operations, net of tax	224,707		(445,414)		(58,779)
Net income (loss)	$	309,911	$	(469,966)	$	(59,868)
Less: Net loss attributable to NCI	—		(111)		(1,949)
Net income (loss) attributable to ACIC	$	309,911	$	(469,855)	$	(57,919)
OTHER COMPREHENSIVE INCOME (LOSS):
Change in net unrealized gains (losses) on investments	5,998		(56,600)		(18,267)
Reclassification adjustment for net realized investment losses (gains)	6,808		32,082		(3,567)

Income tax benefit related to items of other comprehensive income (loss)	—		49		5,264
Total comprehensive income (loss)	$	322,717	$	(494,435)	$	(76,438)
Less: Comprehensive loss attributable to NCI	—		(164)		(2,295)
Comprehensive income (loss) attributable to ACIC	$	322,717	$	(494,271)	$	(74,143)

Weighted average shares outstanding
Basic	43,596,432		43,052,070		42,948,850
Diluted	44,388,804		43,052,070		42,948,850

Earnings available to ACIC common stockholders per share
Basic
Continuing operations	$	1.96	$	(0.56)	$	0.02
Discontinued operations	$	5.15	$	(10.35)	$	(1.37)
Total	$	7.11	$	(10.91)	$	(1.35)
Diluted
Continuing operations	$	1.92	$	(0.56)	$	0.02
Discontinued operations	$	5.06	$	(10.35)	$	(1.37)
Total	$	6.98	$	(10.91)	$	(1.35)

See accompanying notes to consolidated financial statements.

AMERICAN COASTAL INSURANCE CORPORATION

Consolidated Statements of Stockholders’ Equity (Deficit)


				Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Deficit)		Stockholders’ Equity (Deficit) Attributable to ACIC		NCI		Total Stockholders’ Equity (Deficit)
	Common Stock
	Shares	Amount
December 31, 2020	43,075,877	$	4	$	393,122	$	(431)	$	9,693	$	(6,635)	$	395,753	$	21,846	$	417,599
Net loss	—	—		—		—		—		(57,919)		(57,919)		(1,949)		(59,868)
Other comprehensive loss	—	—		—		—		(16,224)		—		(16,224)		(346)		(16,570)

Stock compensation	294,565	—		1,146		—		—		—		1,146		—		1,146
Cash dividends on common stock ($0.24 per common share)	—	—		—		—		—		(10,350)		(10,350)		—		(10,350)

December 31, 2021	43,370,442	4		394,268		(431)		(6,531)		(74,904)		312,406		19,551		331,957
Net loss	—	—		—		—		—		(469,855)		(469,855)		(111)		(469,966)
Other comprehensive loss	—	—		—		—		(24,416)		—		(24,416)		(53)		(24,469)
Return of Capital to NCI	—	—		—		—		—		1,052		1,052		(19,387)		(18,335)
Stock compensation	(90,269)	—		1,363		—		—		—		1,363		—		1,363
Cash dividends on common stock ($0.06 per common share)	—	—		—		—		—		(2,589)		(2,589)		—		(2,589)
December 31, 2022	43,280,173	4		395,631		(431)		(30,947)		(546,296)		(182,039)		—		(182,039)
Net income	—	—		—		—		—		309,911		309,911		—		309,911
Other comprehensive income, net	—	—		—		—		12,806		—		12,806		—		12,806
Impact of deconsolidation of discontinued operations	—	—		—		—		1,004		(1,004)		—		—		—
Stock compensation	123,744	—		1,294		—		—		—		1,294		—		1,294
Issuance of common stock	3,373,089	1		26,792		—		—		—		26,793		—		26,793
December 31, 2023	46,777,006	$	5	$	423,717	$	(431)	$	(17,137)	$	(237,389)	$	168,765	$	—	$	168,765

See accompanying notes to consolidated financial statements.

AMERICAN COASTAL INSURANCE CORPORATION

Consolidated Statements of Cash Flows


	Year Ended December 31,
	2023		2022		2021
OPERATING ACTIVITIES
Net income (loss)	$	309,911	$	(469,966)	$	(59,868)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization, including goodwill impairment	10,626		23,312		11,768
Bond amortization and accretion	1,006		5,624		8,814
Net realized losses (gains) on investments	5,466		32,082		(3,567)
Net unrealized losses (gains) on equity securities	(2,884)		6,585		(3,237)

Provision for uncollectible premiums	(19)		(37)		108
Provision for uncollectible reinsurance recoverables	236		(40)		(177)
Provision for uncollectible notes receivable	—		—		20
Deferred income taxes, net	14,436		24,138		(22,816)
Stock based compensation	1,318		1,388		1,185
Payment receivable in connection with HCI renewal rights agreement	—		3,800		(3,800)
Stock issued in connection with HCI renewal rights agreement	—		—		(5,007)
Gain on sale of property and equipment	(588)		(12,888)		—
Fixed asset and intangible asset disposals	1,147		2,884		21
Gain on disposition of former subsidiary	(238,440)		—		—
Changes in operating assets and liabilities:
Accrued investment income	83		234		1,384
Premiums receivable	16,048		(6,833)		8,065
Reinsurance recoverable on paid and unpaid losses	741,141		(634,248)		(175,787)
Ceded unearned premiums	(21,381)		217,603		(46,043)
Deferred policy acquisition costs, net	33,981		(20,413)		35,894
Other assets	(55,589)		(3,218)		20,898
Unpaid losses and loss adjustment expenses	(656,286)		862,488		(5,516)
Unearned premiums	(154,108)		(99,120)		(78,998)
Reinsurance payable on premiums	(46,967)		(188,729)		6,989
Payments outstanding	(68,703)		100,533		36,612
Accounts payable and accrued expenses	2,142		(1,755)		(14,915)
Lease liabilities	(913)		(245)		(377)
Other liabilities	(27,666)		(16,292)		(7,041)
Net cash used in operating activities	(136,003)		(173,113)		(295,391)
INVESTING ACTIVITIES
Proceeds from sales, maturities and repayments of:
Fixed Maturities	239,995		250,536		442,406
Equity Securities	40,436		750		12,691
Other Investments	2,418		2,825		72,462

Purchases of:
Fixed Maturities	(37,780)		(25,545)		(198,553)
Equity Securities	(79)		(7,648)		(30,222)
Other Investments	(15,385)		(2,272)		(42,136)
Proceeds from sale of property and equipment	629		21,236		—
Cost of property, equipment and capitalized software acquired	(196)		(3,047)		(5,271)
Disposition of cash on divestiture of subsidiary	(232,582)		—		—
Net cash provided by (used in) investing activities	(2,544)		236,835		251,377
FINANCING ACTIVITIES
Tax withholding payment related to net settlement of equity awards	(24)		(25)		(39)
Return of capital in connection with termination of noncontrolling interest	—		(18,335)		—
Repayments of borrowings	—		(4,441)		(1,817)


Dividends	—		(2,589)		(10,350)
Proceeds from issuance of common stock	26,793		—		—
Net cash provided by (used in) financing activities	26,769		(25,390)		(12,206)
Increase (decrease) in cash, cash equivalents and restricted cash, including cash classified as assets held for disposal	(111,778)		38,332		(56,220)
Cash, cash equivalents and restricted cash at beginning of period	283,610		245,278		301,498
Cash, cash equivalents and restricted cash at end of period	$	171,832	$	283,610	$	245,278
Supplemental Cash Flows Information
Interest paid	$	10,875	$	9,553	$	9,534
Income taxes paid (refunded)	$	(10,569)	$	2,487	$	(19,895)

See accompanying notes to consolidated financial statements.

AMERICAN COASTAL INSURANCE CORPORATION

Notes to Consolidated Financial Statements

December 31, 2023

1) ORGANIZATION, CONSOLIDATION AND PRESENTATION

(a)Business

American Coastal Insurance Corporation (referred to in this document as we, our, us, the Company or ACIC) is a property and casualty insurance holding company that sources, writes and services residential commercial and personal property and casualty insurance policies using a network of agents and two wholly-owned insurance subsidiaries. On July 10, 2023, we changed our corporate name from United Insurance Holdings Corp. to American Coastal Insurance Corporation. Our two insurance subsidiaries are Interboro Insurance Company (IIC), acquired via acquisition on April 29, 2016; and American Coastal Insurance Company (AmCoastal), acquired via merger on April 3, 2017.

Our other subsidiaries include United Insurance Management, L.C. (UIM), a managing general agent; Skyway Claims Services, LLC (SCS), which provides claims adjusting services to our insurance companies; AmCo Holding Company, LLC (AmCo) which is a holding company subsidiary that consolidates its respective insurance company; BlueLine Cayman Holdings (BlueLine), which reinsures portfolios of excess and surplus policies; UPC Re, which provides a portion of the reinsurance protection purchased by our insurance subsidiaries when needed; Skyway Reinsurance Services, LLC, which provides reinsurance brokerage services for our insurance companies; Skyway Legal Services, LLC (SLS), which provides claims litigation services to our insurance companies; and Skyway Underwriters, LLC, a managing general agent that provides technological and distribution services to our insurance companies.

Our primary products are commercial and homeowners' residential property insurance. We currently offer commercial residential insurance in Florida. During 2022, we also wrote commercial residential insurance in South Carolina and Texas, however, effective May 1, 2022, we no longer write in these states. In addition, we write personal residential insurance in New York. During 2022, we wrote personal residential business in six other states; however on February 27, 2023, our former insurance subsidiary, United Property & Casualty Insurance Company (UPC) was placed into receivership with the Florida Department of Financial Services (DFS), which divested our ownership of UPC. The events leading to receivership and results of this subsidiary, now included within discontinued operations, are discussed in Note 3 below.

Effective June 1, 2022, we merged our majority-owned insurance subsidiary, Journey Insurance Company (JIC) into AmCoastal, with AmCoastal being the surviving entity. JIC was formed in strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Kiln) on August 30, 2018 and operated independently from AmCoastal prior to the merging of the entities. The Kiln subsidiary held a noncontrolling interest in JIC, which was terminated prior to the merger.

As a result of the Sale Agreement described above and resulting in classification of IIC as discontinued operations, the remaining activity captured within continuing operations supports only our commercial residential insurance offerings. Given this fact pattern, we now conduct our operations under one operating segment. Our chief operating decision maker is our President, who makes decisions to allocate resources and assesses performance.

(b)Consolidation and Presentation

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP). While preparing our consolidated financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us to make extensive use of estimates include our reserves for unpaid losses and loss adjustment expenses, investments and goodwill. Except for the captions on our Consolidated Balance Sheets and

AMERICAN COASTAL INSURANCE CORPORATION

Notes to Consolidated Financial Statements

December 31, 2023

Consolidated Statements of Comprehensive Loss, we generally use the term loss(es) to collectively refer to both loss and loss adjustment expenses.

We include all of our subsidiaries in our consolidated financial statements, eliminating intercompany balances and transactions during consolidation. As described in Note 2, our subsidiary, IIC and our former subsidiary, UPC, and activities related directly to supporting the business conducted by UPC qualified as discontinued operations.

2) SIGNIFICANT ACCOUNTING POLICIES

(a)Cash, cash equivalents, and restricted cash

Our cash, cash equivalents, and restricted cash include demand deposits with financial institutions, cash that is held in trust for assumed business, cash held in deposit accounts to satisfy state statutory deposit requirements, and short-term, highly liquid instruments with original maturities of three months or less when purchased.

(b)Investments

We currently classify all of our investments in fixed maturities and short-term investments as available-for-sale, and report them, our equity securities and limited partnership investments at fair value. Subsequent to our acquisition of available-for-sale securities, we record changes in value through the date of disposition as unrealized holding gains and losses, net of tax effects, and include them as a component of comprehensive loss. We include realized gains and losses, which we calculate using the specific-identification method for determining the cost of securities sold, in net loss. We amortize any premium or discount on fixed maturities over the remaining maturity period of the related securities using the effective interest method, and we report the amortization in net investment income. We recognize dividends and interest income when earned.

Quarterly, we perform an assessment of our investments to determine if any are impaired as the result of a credit loss. An investment is impaired when the fair value of the investment declines to an amount less than the cost or amortized cost of that investment. For each fixed-income security in an unrealized loss position, if we determine that we intend to sell the security or that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, the security’s entire decline in fair value is recorded in earnings.